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EUR/USD. Is there life after the symposium? Jackson Hole won't break the dollar

The euro-dollar pair, like all major dollar pairs, is captivated by market expectations. The dollar has partially regained its lost positions, but the pair still remains within a narrow price range. On the wave of corrective growth, bulls were able to overcome the intermediate resistance level of 1.1730 (Tenkan-sen line on the daily chart), but at the same time did not cope with the resistance level of 1.1770 (middle Bollinger Bands line on the same timeframe). As a result, the EUR/USD bulls loosened their grip and retreated from the conquered heights, while the bears were unable to seize the initiative in order to return the price to the area of the 16th figure. Both bulls and bears are showing their indecision ahead of Federal Reserve Chairman Jerome Powell's speech on Friday.

If we consider the short-term prospects of EUR/USD, then the indecision of traders is quite justified. Many analysts (most) are skeptical about the idea that Powell will give the "go-ahead" to curtail incentives this year. But at the same time, a number of analysts still admit such a scenario. The intrigue in this matter will persist until the "X-hour", that is, until 15:00 (London time) Friday, when Powell will deliver a speech at the economic symposium.


But let's analyze the possible consequences of the implementation of a pessimistic (for the dollar) scenario. Let's say that Powell really focuses on the existing risks (deterioration of the epidemiological situation, the first signs of slowing inflation, contradictory results of other macroeconomic reports, a decrease in the rate of vaccination) and will not voice clear messages about the prospects for QE. How harmful for the greenback is this outcome of the economic symposium in Jackson Hole?

To begin with, Powell belongs to the dovish wing of the Fed, although in his speeches he tries to maintain a certain balance. Whatever it was, it can not be counted among the hawks even with a big stretch. Therefore, most analysts are set up accordingly, a priori not expecting any decisiveness from Powell. Especially in the current situation, when the daily growth rate of those infected with coronavirus in America exceeded the 200,000 mark (in early June, the increase was 10-12,000 per day). In other words, the market is "by default" set to pessimistic notes from the head of the US central bank, especially after the resonant speech of the head of the Federal Reserve Bank of Dallas, Robert Kaplan. Being a consistent hawk, Kaplan unexpectedly announced that the central bank may have to wait for decisive actions. Actually, after these words, the dollar weakened throughout the market. I would like to assume that the market has partially won back the possible dovish position of Powell in this way.

Further. As mentioned above, Powell tries to maintain a certain balance during his speeches, so as not to unbalance the markets. Therefore, even if Powell does not announce the curtailment of QE, he can express the idea that "all options for further actions are still open." And here we can recall the minutes of the Fed's last meeting, which was published last week. The document is clearly hawkish in nature and reflects the readiness of the Committee members to take the first steps to reduce incentives this year. Therefore, if Powell reports that the fate of QE will be decided "at one of the next Fed meetings," the dollar may jump throughout the market. By the way, many representatives of the Fed during August advocated an early curtailment of incentives, even despite the first signs of slowing inflation.

If we talk directly about the euro-dollar pair, it should be noted that even in the case of Powell's disappointing speech on Friday, the uncorrelation of the positions of the Fed and the European Central Bank will not go anywhere. The ECB will still take a softer and more indecisive position compared to the Fed. Therefore, as soon as the first emotions come to naught, the EUR/USD pair will again be under pressure. After all, the dollar will still have hopes for curtailing QE this year (plus a likely rate hike at the end of 2022), while the euro is categorically devoid of such hopes.

Just today, the ECB's Chief Economist Philip Lane said that it was "too early" to discuss the end of the PEPP program at the September meeting. At the same time, he recalled that the implementation of the QE policy will continue within the framework of the APP program. Lane also complained about the weak pace of wage growth and once again voiced the thesis that the current increase in inflation in the eurozone is temporary. In general, the ECB at its last meeting made it clear that the incentives may last much longer, relative to the earlier forecasts of the expert community. At the July meeting, the central bank outlined new guidelines for the future direction of monetary policy in accordance with the revision of the strategy. Let me remind you that the previous policy provided for a fairly flexible benchmark for inflation, the level of which should have been "slightly below 2%". According to the new strategy, the target level was set strictly at the 2% mark. In addition, under certain conditions, inflation may exceed the two percent target, and this fact will not entail the adoption of immediate retaliatory measures by the ECB.

All this suggests that in the medium and (especially) long term, the dollar will retain its appeal in the EUR/USD pair. Short-term trading cannot be considered at the moment: the situation is too uncertain and shaky. But if we consider long-term trading, then short positions are still a priority here. The first support level is located at 1.1650 (the lower line of the Bollinger Bands on the D1 timeframe). The main support is one hundred points lower (1.1550) - this is the upper limit of the Kumo cloud on the monthly chart.

The material has been provided by InstaForex Company -