Who benefits from this? This is an extremely important question not only for detectives but also for Forex traders. Will the ECB worry about the collapse of the EUR/USD? I don't think so. A weak euro will boost exports and accelerate inflation in the euro area. Will the Fed tear its hair out because of the strengthening of the US dollar? Unlikely. If Treasury yields rose and the S&P 500 went to a serious correction – it would be another matter. While there is neither one nor the other, financial conditions remain favorable, and the Federal Reserve can afford to normalize monetary policy.

A strong dollar is also an export of inflation. The fact that consumer prices in the United States are growing by 5.4%, and in the eurozone - by 2.2%, is an extremely useful thing for the Fed. Based on the CPI differential, the EUR/USD pair should move towards parity. But Nordea puts forward a more modest forecast - 1.1. It is based on the fact that the Fed will raise the federal funds rate four times by the end of 2023 (the first hike is expected by the company in September 2022), and the ECB's quantitative easing program is serious and for a long time.

Dynamics of EUR/USD and inflation differential in the USA and the Eurozone

In general, I agree with Nordea's forecast, but I discount such a factor as COVID-19, and I think that 1.1 in EUR/USD is very cool, and 1.12 is quite acceptable. So far, according to Jerome Powell, the Fed is monitoring the spread of the pandemic in the United States but adheres to the idea that the economy has adapted to it. However, should the authorities in certain American states return to lockdowns, the Central Bank's opinion may change. In the face of a slowing US economy, abandoning QE is not the best choice. It's another matter if it is overheated. Can the Fed give up the temptation to take away the punch bowl just as the party gets going?

According to the minutes of its July meeting, the majority of FOMC members believe that the inflation target of 2% has been met. It is more difficult with unemployment, but there is progress. The recovery in the labor market, thanks to the abolition of stimulus checks for $300 a week, risks accelerating in the fall. Looking at the skyrocketing job openings, unemployment could plummet to historically low levels. Will the Fed's "doves" then have arguments to contain the offensive impulse of their opponents?

Dynamics of vacancies and unemployment in the United States

Jackson Hole was supposed to be the centerpiece of the last full week of August, but the markets do not expect a message from Jerome Powell about the curtailment of QE. The Fed needs at least one more strong report to do this. In addition, the absence of Christine Lagarde at the meeting further reduces investor interest. Most likely, their attention will be focused on leading indicators for the eurozone economy, including business activity, as well as US GDP and inflation.

Technically, there is no reason to doubt the stability of the EUR/USD downward trend. Sales on the rebound from the moving averages near 1.1775 were successful. We keep shorts and periodically increase them on growth. The target is 1.15, which corresponds to the 261.8% target for the AB=CD pattern.

EUR/USD, Daily chart