According to the results of the past week, buyers of the EUR/USD pair still lost the fight for the 18th figure. Even the key release of the week, which turned out to be not in favor of the dollar, could not turn the situation around. American inflation, of course, "let down" the greenback, but did not turn the pair around, allowing the EUR/USD bulls to be satisfied with only a slight corrective growth.
In general, over the past 5 days, there has been quite weak volatility in the pair – by and large, traders have been trading in the range of 1.1760-1.1830. On the eve of the Fed's September meeting, which will be held next Thursday, neither the bulls nor the EUR/USD bears decided on large-scale counterattacks and offensives. The euro is depressed by the ECB's indecision, while the Federal Reserve may present a "hawkish surprise" to dollar bulls. At least, some experts do not rule out such a scenario.
The 10-day "silence regime," which the Fed members are required to observe on the eve of the meeting, only increases the intrigue. Market participants have to be content with numerous opinions of analysts, currency strategists, and experts, among whom are former representatives of the Federal Reserve System. In particular, the former head of the Federal Reserve Bank of Atlanta (from 2007 to 2017) recently suggested that the US regulator will announce the tapering of QE at the November meeting, starting to implement its intentions in December. This scenario, expressed by a former Fed official, fell "to the liking" of dollar bulls: the greenback again began to gain momentum throughout the market.
Macroeconomic reports also provided additional support to the US currency. In particular, data on retail sales in the United States, published on Thursday. A month ago, the July figures disappointed investors: the total volume of retail trade decreased by 1.1%, and excluding car sales - by 0.4%. However, Thursday's data reflected a mirror situation: both components came out in the "green zone," exceeding the forecast values. According to forecasts, the indicators should have remained in the negative area (-0.7%, -0.1%). But contrary to pessimistic expectations, retail sales jumped up: the overall indicator rose to 0.7%, excluding car sales – to 1.8% (the best result since March of this year).
Another macroeconomic indicator – the US labor market - fell a little short of the forecast level, but still provided indirect support to the greenback. So, last week, the number of initial applications for unemployment benefits increased by only 310,000 – this is a new minimum after the start of the coronavirus pandemic. On Thursday, this indicator "gave" a 332,000 result (with a forecast of growth up to 320,000). Despite the "red color", this release also strengthened the position of the greenback. For comparison, it can be noted that in June this indicator came out in the region of 400,000, while from mid-July it began to gradually, but quite confidently decline.
Thus, the latest macroeconomic reports have supported the US currency. The European currency, meanwhile, cannot find a foothold. While the representatives of the Fed remain silent, the representatives of the ECB actively comment on the current situation. And these comments do not inspire EUR/USD buyers to conquer new heights.
For example, ECB Governing Council member Olli Rehn said Thursday that the EU economy "still requires support from the regulator." In his opinion, production problems, which are caused by supply disruptions, have a negative impact on the economic prospects of the European region.
The growth of inflation in the eurozone also did not impress the representatives of the ECB. According to them, the growth of inflation indicators is temporary, while the underlying inflationary pressure will grow very smoothly and gradually. In one form or another, this position was voiced by Christine Lagarde, Philip Lane, Martins Kazaks, Gabriel Makhlouf, and some of their other colleagues. At the same time, Lagarde, following the results of the last meeting, recalled the new strategy of the European regulator, adding that inflation may exceed the target level in the transition period. All this suggests that the ECB will maintain its accommodative policy next year, even after the completion of the PEPP program (according to rumors, this program will be replaced by an "enhanced" APP program, the volume of which will be increased to 30-40 billion from the current 20 billion).
In other words, while the European Central Bank maintains a soft and wait-and-see position (despite the continued increase in inflation), the Federal Reserve may still surprise market participants with its "hawkish" attitude (despite the slowdown in inflationary growth). The market lives on expectations, and at the moment it is these expectations that are pushing the pair down.
Thus, the EUR/USD pair retains the potential for its further decline. From a technical point of view, the price on the daily chart is located between the middle and lower lines of the Bollinger Bands indicator, as well as under all the lines of the Ichimoku indicator (including under the Kumo cloud). The first target of the downward movement is the 1.1720 mark (the lower line of the Bollinger Bands), followed by the main support level of 1.1700.
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