Against the background of an empty calendar, the EUR/USD pair unexpectedly demonstrated a downward impulse, testing support for 1.1150 (the bottom line of the Bollinger Bands indicator on the daily chart). By and large, traders today started "ahead of schedule" to recoup the hypothetical results of the ECB July meeting, which will be held on Thursday.
First of all, it is worth noting that, reacting so violently to dovish rumors, the EUR/USD bears drive themselves into a trap of high expectations: if the European regulator does not justify bearish hopes, the pair can shoot back, as has repeatedly happened in similar situations. In any case, today's decline should be treated with caution, given the informational unreliability of fundamental factors. Obviously, at the moment, EUR/USD traders follow the principles of "sell on rumors, buy on facts". So far, investors are selling the pair at a heightened pace, but if the rumors spread do not materialize on July 25, the pair will be just as actively bought.
By and large, the single currency became a victim only of the assumption that the European Central Bank will soften the parameters of monetary policy at the next meeting, that is, the day after tomorrow. Such rumors appeared following the monthly report of the Bundesbank published yesterday and the updated forecast of the International Monetary Fund published today. The essence of the published documents is that the economic situation will only worsen in the foreseeable future and, therefore, the leading central banks of the world should prepare for appropriate response actions.
Thus, according to the information of the German central bank, the German industry showed a decline in the second quarter of this year (continuing the negative trend of the first quarter), while the high probability of a hard Brexit slows down the export sector of the country, which was already under pressure from global trade conflicts. According to monthly data, the volume of industrial production in Germany (seasonally adjusted) rose by only 0.3% in May, while the estimate for April was revised downward to -2%. In annual terms, the volume of industrial production in Germany declined by 3.7% at once. In general, leading indicators, including the volume of production orders, suggest that the German economy in the second quarter will demonstrate a dismal result, especially against the background of growth at the beginning of the year. After the publication of this report, some experts suggested that this document will affect the decisiveness of ECB members regarding the launch of new incentives and further easing of monetary policy.
Today's IMF report also added fuel to the fire. For the fourth time in a row, the Fund's analysts lowered forecasts for global GDP growth - this time the figure was revised from 3.3% to 3.2%. In addition, in the July review of the world economy, the IMF estimated the prospects for economic growth in some countries of the world. In particular, the forecast for the current year was slightly reduced for Germany (which is consistent with the findings of the Bundesbank), but remained unchanged for France and Italy. The growth forecast for the Chinese economy in 2019-2020 was reduced by 0.1 percentage points to 6.2% and 6%, respectively. It is noteworthy that the forecast for the growth of the American economy was revised by IMF economists upward (by 2019) by 0.3%, that is, to 2.6%. This factor served as an additional factor supporting the dollar amid falling fears about the "too dovish" actions of the Fed at the July meeting.
But regarding the possible actions of the ECB for EUR/USD traders, the opposite opinion is completely different. So, according to some analysts polled by Bloomberg, the European regulator can divide the monetary policy easing process into two phases, lowering the interest rate at the July meeting further into the negative area, and resuming the quantitative easing program at the September meeting. According to other analysts (of which the majority), Mario Draghi at the July meeting only announces a large-scale softening of the parameters of monetary policy, but he will start taking real steps in the autumn, before his resignation.
In my opinion, the regulator will not be in a hurry with its actions in July, and the market is now "in advance" playing out the dovish intentions of the ECB. In addition, the EUR/USD pair is also falling due to the growth of the dollar index. The US currency is growing on market confidence that the Fed will limit itself to a "warning shot" in the form of a one-time rate cut of 25 basis points. This fact has already been taken into account in the prices since the moment Jerome Powell spoke in Congress. The vast majority of the Fed members who spoke last week before the unofficial "silence regime" (10 days before the Fed meeting) made it clear that the regulator does not intend to take the path of aggressive rate cuts - after the July decline, the Fed is more likely to take a wait-and-see position. Naturally, this fact will not please the White House - but so far traders are guided only by the declared intentions of the US central bank, and not by Trump's hypothetical plans to devalue the national currency. Therefore, the dollar is growing "on all fronts" today, reinforcing the EUR/USD pair's downward trend.
At the time of this writing, the euro-dollar pair was unable to overcome the lower line of the Bollinger Bands indicator (1.1150) due to the attenuation of the downward impulse. If in the near future, bears of the pair do not receive additional support from the information field (which is unlikely), the pair will continue to drift in the price range of 1.1150-1.12230 (where 1.1230 is the lower boundary of the Kumo cloud at D1), until the ECB meeting on which Mario Draghi will dot the i.
