Monday's empty calendar did not prevent buyers of the EUR/USD pair from showing their character and approaching the borders of the 19th figure. And although traders did not dare to storm this price level, they indicated the priority of bullish sentiment. To be more precise, the pair primarily grew due to the US dollar's weakness, which is declining to one degree or another throughout the market. The European currency is kept afloat only due to the optimistic and restrained position of the European Central Bank, which, in fact, made it possible for the euro to grow in the long term. ECB President Christine Lagarde did not support the chief economist of the central bank Philip Lane, who criticized the euro's high rate on the eve of the September meeting. After his comments, many traders feared foreign exchange interventions (or related announcements), but their fears did not materialize. Lagarde reacted rather calmly to the euro's exchange rate, only noting that the central bank would "closely monitor" the dynamics of EUR/USD.
This ECB's stance made it possible for the euro to stay afloat against the dollar, but did not allow a test of the multi-month highs in the area of the 20th figure. Nonetheless, the dollar plays the leading role in determining the EUR/USD trend, therefore market participants are primarily guided by greenback's behavior.
The dollar index also cannot get out of the flat band, in which the indicator has been fluctuating for almost a month and a half. After it grew at the beginning of Monday (93.30), the dollar then lost its conquered positions again, and returned to the area of the 92nd figure. Considering the fact that the macroeconomic calendar (for both the euro and the dollar) is empty today, the market was guided by near-market (mainly political) fundamental factors.
The dollar is under pressure from three factors. First, the dollar bulls reacted painfully to the failure of the vote for an additional aid package to the American economy - last Thursday the US Senate rejected the Republican bill. Moreover, the congressmen made it clear that there is practically no hope for the adoption of such a bill in the foreseeable future. Democrats insist on their proposal, which is worth almost three trillion, while Republicans have offered a 300 billion aid package (i.e. 10 times less). After two months of fruitless talks, the parties are rejecting the option of consultations on this issue.
The second factor of pressure is also related to politics. The results of the latest poll conducted by Fox News were published today. So, a month and a half before the election, Donald Trump reduced his gap with Democrat Joe Biden at the national level again - this time to five percent. If 51% of voters are ready to vote for Biden, then 46% are for Trump. The head of the White House is closing the gap with Biden in key states, and nine regions of the country have so far decided who they will vote for (they total 147 electoral votes). At the same time, Trump continues to intensify anti-Chinese rhetoric, scaring the markets with increased trade confrontation between the superpowers after his re-election.
The third "anchor" is associated with the upcoming Federal Reserve meeting, the results of which will be announced this Wednesday. Traders fear that the details of the Fed's new strategy will put more pressure on the greenback. Let me remind you that Fed Chairman Jerome Powell said that inflation could exceed the target two percent threshold before the central bank returns to the issue of raising the rate. Now the main question is where exactly is the "red line" for the Fed and how high inflation should climb for the central bank to tighten the parameters of monetary policy. Given the ongoing intrigue, traders are in no hurry to invest in the dollar.
The euro is also under certain pressure, albeit an indirect one. The controversial UK home market bill, which contradicts the deal between London and Brussels, is now in the House of Commons. Discussion of this bill starts today, and it will soon become clear whether it will be supported by the British Parliament or not. Five (!) former prime ministers, many prominent Conservatives and even ex-British finance minister Sajid Javid, who worked in Johnson's Cabinet, have spoken out against this bill. This disposition reduces the likelihood that MPs will approve a bill that in fact violates international law. On the other hand, this bill will only work if the parties do not enter into a trade deal. Prime Minister Boris Johnson focuses on this very moment. However, he claims that the European Union can "stop the supply of food from the UK to Northern Ireland." In other words, it is impossible to completely exclude the option that the House of Commons will approve the bill in the first reading. Therefore, the euro is behaving quite cautiously, although it dominates against the greenback.
Therefore, you should prioritize buy positions for the EUR/USD pair, even despite the Brexit factor. The growth target for the medium term is 1.1930 - this is the upper line of the Bollinger Bands indicator on the daily chart. Stop loss can be marked at 1.1690 (the upper border of the Kumo cloud on the same timeframe) - if the pair goes below this target, the relevance of the growth scenario will be lost - at least in the medium term.
