After the regular speech of Federal Reserve President Jerome Powell in the Congress, the derivatives market began to believe in the soft position of the regulator so much that it started laying down the interest rate at the FOMC meeting in July by 0.5%.

However, the latest statistical data on the United States stopped the weakening of the greenback that started on this background and somewhat restrained investors' expectations regarding the Fed's actions at the next meeting, which will be held on July 31. However, their belief in the reduction of the federal funds rate by 0.25% and the fact that the cycle of easing of the monetary policy of the US central bank will begin with this remains unshakable. However, the FOMC accompanying statement can still cool risk appetite.

The US economy is still in good shape and does not require, in contrast to the European one, an increase in monetary incentives. This casts doubt on the feasibility of lowering the interest rate of the Fed at the moment. This step is likely to be political. In this case, the president of the White House, Donald Trump, who is increasing pressure on the Fed and even declaring him the no. 1 enemy of the US economy, will finally receive a strong trump card for conducting trade negotiations with China. It is possible that this will advance them and will become an additional positive factor for the markets.

It is assumed that until the next Fed meeting, the USD index will remain sideways, and after it the greenback will not show significant weakening, but rather will even strengthen to the 98th mark. The medium-term trend for the weakening of the dollar will not start immediately, and only if the Fed confirmed its statements over the beginning of the cycle of interest rate reduction.

Meanwhile, among investors, expectations of easing of monetary policy are intensifying not only on the part of the Fed, but also on the ECB.

Looking at how industrial production is stalling, production orders are shrinking, inflation is not growing at the required pace in the region, the market is becoming increasingly convinced that the ECB's monetary expansion is only a matter of time.

Already at the next meeting, which will be held this week, the regulator may hint about a decrease in the deposit rate from -0.4% to -0.5% in September and the resuscitation of the quantitative easing program (QE) in the amount of €2.6 trillion at the beginning 2020. According to a consensus forecast of experts recently surveyed by Bloomberg, asset purchases will be €40 billion per month. The possible easing of the ECB monetary rate is a negative for the euro, however, it is most likely already taken into account in the quotes.

The absence of surprises from the regulator at the upcoming meeting may trigger the growth of the single European currency due to the implementation of the principle "sell on rumors, buy on facts".

Can the ECB give the market more than it expects to keep EUR/USD from leaping up?

"We do not think that the ECB has the capacity to ensure a stable and noticeable weakening of the euro, but we believe that the regulator may very well present an unpleasant surprise for the bulls," said the MUFG strategists.

"The most painful reaction will be if the ECB reduces the rate on deposits in July not by 10, but immediately by 20 basis points. Such a decision would be justified if we take into account the weakness of the statistical data for the euro area and the need to apply active measures to get some visible effect. At the same time, a decline in EUR/USD in response to a cut in ECB rates is likely to be short-lived and limited, partly in view of the approaching date of the Fed meeting, which will take place on July 31," they added.