Against the background of an empty economic calendar, the euro-dollar pair is trading at the boundary of the 11th figure, showing phlegmatic price movements within 30 points. Traders are in no hurry to open major positions in anticipation of the Jackson Hole Symposium, during which representatives of the central bank of leading countries of the world will speak. On the whole, the current trading week is poor enough for events of a fundamental nature. For example, today EUR/USD traders were content only with data on the growth of European inflation (final estimate for July) and the Bundesbank report. These fundamental factors were actually ignored by the market, despite the fact that one of the components of European inflation was revised downward.
Thus, according to the final assessment, the general consumer price index in July grew by only 1%, whereas initially this indicator reached 1.1%. And although we are talking about minimal fluctuations, the European currency fell to the level of 1.1088, updating the low of the day. However, it quickly recovered, freezing in tandem with the dollar at the boundary of the 11th figure. The core inflation index has not been revised downward, and this fact seems to have reassured investors.
The Bundesbank report, in turn, was not surprising: according to members of the German regulator, the general state of the country's economy may deteriorate in the near future, mainly due to a decline in industry. Also, the central bank of Germany noted a weakening labor market and a decrease in the confidence index in the service sector. Despite such pessimistic forecasts, traders ignored this report. This is partly due to the fact that the market has already won back the data on the growth of the German economy published last week. In addition, traders did not dramatize the situation for another reason. Let me remind you that at the end of last week, representatives of the German government said that Berlin could allow a budget deficit by loosening budget saving rules and abandoning a zero-deficit policy. In other words, Angela Merkel allowed the option of fiscal stimulus and budget deficit. Given this rhetoric, the Bundesbank report is of secondary importance.
In general, the euro-dollar pair is behaving quite calmly today, given the conflicting fundamental background and the uncertainty regarding further actions of both the ECB and the Fed. Representatives of the European regulator are increasingly saying that in September the central bank will be forced to decide on additional incentive measures. In particular, today the head of the central bank of Estonia Madis Muller said this. But his colleague from Finland, Olli Rehn, scared the market last week that the European regulator will resort to comprehensive measures to mitigate monetary policy this fall. According to him, the ECB can not only reduce the interest rate to -0.5%, but also announce new purchases of bonds worth about 50 billion euros per month as part of a quantitative easing program.
In addition, the head of the central bank of Finland suggested that the European Central Bank at one of its next meetings could change the rules of its bond purchase program, which currently prohibits the regulator from acquiring more than 33% of the debt of any individual eurozone government. Thus, according to Rehn, the ECB is ready to apply very aggressive measures to mitigate monetary policy. But here it is worth noting that this issue is debatable - not all members of the European Central Bank share such dovish positions (in particular, the Germans adhere to more restrained views). Therefore, the single currency after Olli Rehn's comments was able to stay within the 10th figure, although it is under background pressure.
The US currency, coupled with the euro, also cannot spread its wings, despite the fact that the dollar index is at its highest annual values (in the region of 98 points). The situation in the debt market, where the inversion of the yield curve was recorded (the yield of two-year US government securities turned out to be higher than the yield of similar ten-year securities), worries investors, and this fact does not allow the dollar to develop a full-scale offensive. Traders are nervous about the possible reaction from the Fed. Although US Secretary of Commerce Wilbur Ross said today that inversion is not a 100 percent sign of an impending recession, this served as little comfort to market participants. Investors are waiting for the speech of the head of the Federal Reserve Jerome Powell, who will speak on Friday to participants in the economic symposium in Jackson Hole.
Thus, the dollar and the euro are under pressure from "their" fundamental factors, causing the pair to turn flat in a fairly narrow price range.
If we talk about the technical picture, then the downward scenario clearly emerges. On the daily chart, the pair is between the middle and lower lines of the Bollinger Bands indicator, which indicates the priority of the bearish movement. The pair is also located under the Kumo cloud, the Ichimoku indicator itself has formed a bearish "Parade of Lines" signal. Oscillators are also in favor of the downwards direction, which indicate the oversold pair. The first downward target for the pair is 1.1060, this is the bottom line of the Bollinger Bands indicator on the daily chart. The main target of the bears is lower, at the bottom of the 10th figure (annual low of 1.1028), breaking through which will open the way to the ninth figure. But for now, it's premature to talk about this: first, the bears must finally gain a foothold in the 10th figure before considering further downwards prospects.
