The hawkish rhetoric of FOMC officials against the backdrop of Christine Lagarde's titanic efforts to present the moderate reduction in asset purchases under the PEPP as a recalibration of the program, rather than a withdrawal of monetary stimulus, would seem to have knocked out EUR/USD bulls. In fact, the divergence in the monetary policy of the ECB and the Fed is a significant, but not the only driver of the peak of the main currency pair. Moreover, if the dollar's strengthening is hindered by the unwillingness of the US Treasury bond yields to grow, the euro bears will carry out their attacks with an eye to the rear.

No matter how they try to explain the suppressed US debt rates by the slowdown in GDP growth in the third quarter or by the Fed's unwillingness to normalize monetary policy, the matter of the issue remains. With the government debt ceiling exceeded, the Treasury is taking emergency measures and reducing borrowing. As a result, over the past 90 days, the Fed has bought more bonds than were issued in circulation. How can the yield on debt obligations grow in such conditions?

Ratios of Treasury Bond Issues and FED Purchases

The situation could change dramatically in the fourth quarter, when the public debt ceiling is likely to be suspended, and the Federal Reserve will aggressively begin to reduce the volume of the $120 billion of the quantitative easing program. Bond rates will surge, the US dollar will get rid of chains, and EUR/USD will return to a downward trend.

As for the ECB, a moderate reduction in asset purchases under PEPP hardly implies their fall to €50-55 billion per month. Most likely, we will talk about €60-65 billion. The European Central Bank will continue to buy up the entire net issue of bonds in the euro area, rates on them will remain low, and the euro will not be able to strengthen much. Even despite the economy, which, according to the forecasts of Christine Lagarde and her colleagues, is ready to accelerate to 5% in 2021. The second quarter was strong, and the ECB expects that the third will be the same, nodding to the high vaccination rate in the EU. Nevertheless, the example of Israel proves that the impressive figures of the vaccination campaign are not a panacea. The epidemic may still strike back in the euro area, which will change the rules of the game.

Dynamics of European QE

Thus, the US dollar relies on monetary policy, while the euro counts on economic growth. Opponents have very serious trump cards in their hands, which increases the risks of medium-term consolidation of the EUR/USD.

The key event of the week of September 17 will be the release of US inflation data. The acceleration in consumer prices can push the Fed to start normalizing monetary policy in November or even October. A clear "bullish" signal for the dollar, but so far its strengthening is hindered by the low yield on US Treasury bonds.

Technically, the breakdown of the pivot point at 1.1845 is fraught with an increase in EUR/USD in the direction of 1.188 (the upper limit of the fair value) and 1.1915-1.1935 (a combination of pivot points). In my opinion, the potential of the upward movement is limited. On the contrary, a successful assault on the support at 1.18 will create grounds for the formation of shorts with targets at 1.175 and 1.17.

EUR/USD, Daily chart