At first glance, the euro-dollar pair is behaving illogically today: against the background of remarkable data on the growth of US inflation, the price is growing and is even trying to test the 18th figure. The dollar index also demonstrates its vulnerability: after a short-term growth, the indicator turned and floated again, to the disappointment of dollar bulls. By and large, both the euro-dollar pair and the dollar index remained within the framework of a multi-day flat: EUR / USD has not left the 17th figure for the third week, just as the dollar index has not left the 93rd figure ... The contradictory picture of today also did not help traders not even bulls nor bears.
What happened?
At the start of the American session on Wednesday, the US published key data on inflation growth. For dollar bulls, this release was of particular importance, especially after the rather strong Nonfarm results. Just last week we found out about the main indicators of the US labor market for the month of July. Almost all of them came out better than expected, despite the difficult situation with the coronavirus in the United States (especially in the southern and western regions of the country). But this nuance did not affect the recovery process: the unemployment rate dropped to 10 percent, the number of people employed in the non-agricultural sector increased by almost 1.5 million, and the average wage growth rate for the first time since May turned out to be above zero. In other words, the US labor market is gradually recovering,
US Treasury Secretary Steven Mnuchin is to blame. Just the other day, Mnuchin saved the USD from a "sell-off", saying that a compromise between Democrats and Republicans over a new aid package can be found this week. But today Mnuchin disappointed dollar bulls. We are talking about reducing the tax on capital gains. Just yesterday, US President Donald Trump said that he was "seriously considering this issue." Moreover, he promised to provide details of this proposal in the coming weeks. I would like to note that this is not the first time the White House has raised the topic of capital gains indexation relative to inflation, thereby influencing the currency and stock markets.
However, on Wednesday, Mnuchin placed a big point on this issue. He clarified that Trump will not be able to do anything unilaterally, for example, with the help of a decree or order. It is necessary to change the relevant legislation, which means negotiate with Congress - both with Republicans and Democrats. It is practically impossible to do this under the current conditions. Congressmen, after three weeks of negotiations, were unable to agree on a bill on the allocation of aid to the US economy - let alone tax issues, which, as a rule, cause fierce controversy. The Treasury Secretary only stated this fact - but against the background of Tuesday's statements by Trump, his words became a catalyst for the dollar's decline throughout the market.
How do I trade?
Against the background of a contradictory fundamental picture, the euro-dollar pair is trading in a wide-range flat, within the 17th figure. At the time of this writing, another attempt to break through the 18th price level ended in failure: the pair could not overcome the resistance level of 1.1805 (Tenkan-sen line on the daily chart), after which it retreated from this price barrier. This means that in the near future, sales are relevant - short positions from the "ceiling" of the price range of 1.1800 to the support level of 1.1700 (the middle line of the Bollinger Bands indicator on the daily chart).
