Neither the minutes of the meetings of the Fed and the ECB, nor statistics on European business activity were able to clarify the fate of the EUR/USD pair. Yes, there is a split inside the FOMC and yes, the eurozone composite PMI in August exceeded the forecasts of Bloomberg experts. However, the index of purchasing managers in the manufacturing sector in Germany continued to peak and is located in the 6-year-old bottom. In addition, the ECB intends to act aggressively. In July, the Governing Council considered the possibility of using a package of incentive measures, including lowering rates and reanimating the asset purchase program. Few people doubt that the monetary stimulus will be generous: the outgoing gentleman, Mario Draghi, is eager to make a farewell gift to Lady Christine Lagarde.

The markets are waiting for Jerome Powell to speak, but I don't think that his speech in Jackson Hole will fundamentally change anything. The Fed chairman is likely to be careful. One wrong word will bring down stock indices. On the contrary, overly aggressive "dovish" rhetoric will contrast with the phrase mentioned in the minutes of the July FOMC meeting on the adjustment of monetary policy in the middle of the cycle.

Euro looks weak and Germany's economy is likely to enter a recession in the third quarter, European exports will continue to moan under the influence of China's GDP slowdown to less than 6% in 2020. This is what 14 Bloomberg experts are warning, nodding that tariffs will slow down the economy Celestial at 0.5 pp for several years. But there is also Italy with its extraordinary elections and concerns on Brexit, which affects not only Britain but also the currency block.

What can save the euro? In my opinion, a large-scale fiscal stimulus, which the German Ministry of Finance speaks of, and from which the Bundesbank is disowning. Many countries in the Eurozone are able to attract resources not only for free but even for money. Negative rates on bonds give this opportunity. So why not take advantage of this, as the Germans did. By posting 30-year bonds with negative returns, Berlin provoked the wrath of Donald Trump. The president called Germany a rival to the United States, and accused the Fed that the Germans could attract free resources, but the Americans could not.

Bond rates

In my opinion, Europe will be able to pull its own economy out of the quagmire by increasing government spending and the scale of bond issues that the ECB will later redeem. However, the risks of the collapse of the currency bloc under such a scenario will increase. What Germany can afford with its substantial budget surplus cannot afford Italy with a deficit and fiscal consolidation programs. As a result, the greater the fiscal stimulus, then the higher the political risks. The euro looks doomed and Jerome Powell can only sweeten the pill to the EUR/USD bulls.

Technically, updating the August low will activate the AB = CD pattern. Its target at 161.8% is near the level of 1.089.

EUR / USD daily chart