So, the euro-dollar pair ended last week at 1.1770 - that is, at the lower limit of the range of 1.1750-1.1830, within which it was traded throughout the entire five-day trading period. EUR/USD bears literally tried to gain a foothold below the target of 1.1750 every day, but in vain: the southern impulse faded, and the price returned back to the range. Traders lack determination, although bearish sentiment for the pair clearly prevails.
The European Central Bank did not support the euro – moreover, the ECB members essentially gave the "green light" to further weakening of the single currency. The new strategy of the Central Bank allows for a temporary excess of the target inflation rate, allowing the regulator to ignore such an inflationary surge. This fact further removed the moment of a possible increase in the interest rate. According to most experts, the ECB will raise the rate no earlier than 2024 (the year 2025 also appears in the reports of currency strategists). As for the prospects for QE, there were no "hawkish" hints here either. Christine Lagarde said that "certain decisions" regarding the prospects for monetary policy will be made at the September meeting, when new macroeconomic forecasts will be published. At the same time, according to insider information from Reuters, in September the European Central Bank will not discuss the fate of the RERR, since at that time there will still be uncertainty about the development of the pandemic. According to sources, the ECB is likely to discuss this issue in October or November. Given the fact that another wave of coronavirus cases is expected during this period, no one will dare to curtail PEPP, only to resume this program again in a few weeks against the background of an increasing epidemiological crisis. All this suggests that the ECB will maintain the current parameters of monetary policy in the foreseeable future, while possible changes will only be in the direction of its further easing.
In other words, the European Central Bank has said its word – now it's the turn of the US Federal Reserve. The next meeting of the Federal Reserve, which will be held on July 27-28, will be the central event of the upcoming week for traders of the EUR/USD pair. Against the background of this event, all other fundamental factors fade, although the economic calendar is full of important releases. Let's focus on the main ones.
So, on Monday, it is traditionally half-empty: only the German IFO indices are of interest. Positive dynamics is expected here – in particular, the indicator of business environment conditions in Germany may again update a long-term record, reaching the level of 102.3 points. This fact may provide minor support for the euro. During the American session, data on home sales in the US on the primary market will be published. Positive dynamics is also expected here after a two-month decline. This release is interesting in the context of recent statements by some representatives of the Fed. In particular, the head of the St. Louis Federal Reserve, James Bullard, said last week that "it's time to curtail incentives", in light of the increased risks of overheating of the US real estate market.
The main release of Tuesday is an indicator of American consumer confidence. After reaching a one-and-a-half-year high (127.3 points), a slight decline is predicted in July – up to 124 points. But if this release is released in the "green zone", the dollar will receive significant support, especially in light of inflation expectations.
On Wednesday, we will learn the results of the July Fed meeting. It should be noted here that despite the dovish comments of Jerome Powell, rumors are persistently being circulated in the market that the American regulator will announce the curtailment of QE at one of the next meetings. Also, among experts, you can often find the idea that the first round of rate increases will take place next year, and not in 2023. And if I would not rush to conclusions about the rate, then the prospects for curtailing QE in the foreseeable future look more realistic. The latest inflation releases reflect the rise in prices of various categories of goods and services, including the amount of rent for housing. This means that the US economy could hypothetically be close to overheating if the Federal Reserve does not take retaliatory measures. At least, this position is voiced by some currency strategists – in particular, the conglomerate Goldman Sachs, who in early July announced that, according to their estimates, the Federal Reserve will announce the curtailment of QE, if not in November, then in December, that is, at the final meeting this year. If at the July meeting Powell at least does not rule out such a scenario, the US currency will receive strong support, and the uncorrelation of the positions of the Fed and the ECB will be more pronounced, putting additional pressure on EUR/USD.
On Thursday, all the attention of traders will be focused on the publication of data on the growth of the US economy in the second quarter. This is the most important release, which can also provoke increased volatility among dollar pairs. Let me remind you that in the first quarter, US GDP grew by 6.4%, exceeding the forecast values. The positive dynamics should also remain in the second quarter – the key indicator should reach 8.6%. If this indicator even minimally exceeds a sufficiently strong forecast level, the dollar will again be in high demand.
But on Friday, the main news for the pair will come from Europe – we will learn data on the growth of inflation in the eurozone in July. In the previous month, the general consumer price index slowed its growth, reaching 1.9% (after the May increase to 2%). The core index, which was at the level of 0.9% (after the previous growth to 1%), also disappointed investors. According to preliminary forecasts, in July, the indicators should "bounce back": the general CPI will return to the two – percent mark, the core CPI-to the one-percent mark. In the event that the indicators come out at the forecast level, this fact will not impress investors. But any, even a minimal "step back" will significantly increase the pressure on the single currency.
Thus, the coming week promises to be volatile. If we talk about trade decisions, then short positions are a priority here – at least until the announcement of the results of the July Fed meeting. The previous expectations will support the dollar, at least according to the trading principle "buy on rumors, sell on facts". It is most expedient to go into sales at the peak of the northern impulses, and to be more precise, when the corrective price pullbacks are "fading". The main goal of the southern movement is still the support level of 1.1750 (the lower line of the Bollinger Bands indicator on the daily chart).
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