While investors' attention was focused on the trade conflict between the US and China, the EUR/USD bulls took advantage of the disappointing statistics on US producer and consumer prices and returned the pair's quotes to the boundaries of the medium-term trading channel 1.12-1.15. By the end of April, CPI rose by 0.3% against the forecast of + 0.4% m/m, core inflation – by 0.1% (consensus estimate of + 0.2%). At a press conference following the FOMC meeting in May, Jerome Powell tried to convince the markets of the temporary nature of the slowdown in inflation, but if its weakness continues, the Fed will have grounds to lower the Federal funds rate. It is not good news for the US dollar.

The dynamics of US inflation and the Fed rate

In 2018, the trade wars caused many troubles to the single European currency. At first, investors were selling EUR/USD amid growing interest in safe-haven assets, then against the background of a slowdown in Chinese GDP. The reduction in foreign demand for German exports nearly plunged the eurozone's leading economy into recession, while rumors of an agreement to end the trade war allowed the euro to grope its feet. At first glance, the mutual exchange of blows from China and the United States in the form of increased duties should have worsened the position of the regional monetary unit. In fact, the yen is the main funding currency for carry-trade due to the low cost of borrowing in Japan and the Old World. The closing of positions by players on the difference provides support to "bulls" on EUR/USD. How long will it last?

Expectations of positive statistics on Germany's GDP for the first quarter (forecast + 0.4% q/q) is able to push the quotations of the main currency pair towards resistance at 1,1265 and 1,1325 even with the failure of trade talks between Washington and Beijing. Another thing is that the success of the euro is likely to be temporary. EUR/USD will start selling on the rise on expectations of a slowdown in the economies of China and the eurozone. On the contrary, if the States and China manage to reach an agreement on the falling flag, the V-shaped recovery of China's GDP and the currency bloc will allow counting on the implementation of the consensus forecast of Bloomberg experts on the euro. At the end of this year, it is $1.18.

In the event of a new round of trade wars under the influence of growing international risks and pressure from the White House, the Fed can ease monetary policy, even if inflation does not want to slow down further. In this scenario, the potential of the rally EUR/USD will increase, although it is unlikely to be long. We've all seen how the central banks and competitors responded to the Federal Reserve's worldview at the beginning of the year. I do not think that in the face of growing fears about the future of the eurozone, the ECB will sit idly by.

Technically, the return of the pair's quotes within the medium-term consolidation range increases the risks of activation of the "deception-release" pattern. To do this, the "bulls" need to storm the resistance at 1.1325. As a result, they will have hope for the implementation of the subsidiary and parent model of the "Wolf Wave".