After uncertain attempts to recover, the US dollar began to lose ground again. The dollar index moved away from multi-month lows in the first half of Thursday, but the greenback lost ground at the start of the US session.
The main currency pairs are now moving in the wake of the US currency, so their price dynamics followed the trajectory of the dollar index. All this suggests that the greenback is still vulnerable, so any attempts to recover can be used as an excuse for selling.
What happened?
As soon as the results of the July Federal Reserve meeting were announced (yesterday evening), the dollar began to actively lose its positions - the rhetoric of the accompanying statement was pessimistic, and the regulator linked the prospects of monetary policy to the prospects for the spread of COVID-19 in the United States, where the epidemiological situation only gets worse. Fed Chairman Jerome Powell also did not please investors at his final press conference. He said that key macroeconomic indicators are recovering too slowly. First of all, inflation is alarming, as it is suffering from the consequences of the coronavirus crisis. The pandemic has hit consumer demand hard - especially in the provision of services (hospitality, catering, air travel, tourism, etc.). The United States still remains in first place in the "coronavirus anti-rating" - both in the number of cases and in the number of deaths from COVID-19. Therefore, inflation remains far from the target of two percent level, upon reaching which the US central bank will only think about tightening the conditions of monetary policy.
Such pessimistic rhetoric put pressure on the dollar, but, as they say, only "at the moment". Almost immediately after the end of Powell's press conference, the US currency stopped falling, and then even began to build up its positions, winning back the lost points. A similar price dynamics was observed during the Asian session on Thursday and partly during the European session. This is due to the fact that traders began to take profits en masse, especially after a multi-day and rapid fall of the US currency. In addition, Powell did not voice the most dangerous topics for the dollar (in particular, we are talking about lowering the interest rate and controlling the bond yield curve). Therefore, when the fuel for pulling down the greenback (and, accordingly, for the growth of EUR/USD) ended, many market participants rushed to close deals, reasonably judging that the price had reached its local peak. That is why the dollar slowly but surely began to increase its turnover in almost all currency pairs.
At the same time, no one was in a hurry to invest in the US currency: the fundamental background for the dollar is still negative. And today it got even worse. The fact is that the data on US GDP growth for the second quarter of this year was published at the start of the US session. Let me remind you that the US economy was actually "frozen" from April to May due to a large-scale lockdown. Therefore, experts interviewed by Reuters were expecting a record decline in the key macroeconomic indicator - by 35%. And they were almost not mistaken: the release came out at 32.9%. This result turned out to be slightly better than the forecasts, but this nuance did not help the US currency.
In addition, the published figures for the second quarter may not fully reflect the economic impact on the country from the pandemic, according to economists from the US Department of Commerce. A revised analysis of the economic situation will be published by the department a little later - on August 27. But today's data was enough for the dollar again to fall under a wave of sales. For example, the price deflator of GDP (which measures the change in prices for goods and services included in the calculation of the indicator) plunged to -1.8%, while a decline was forecast to 0.1%. But just yesterday, Powell spoke about deflationary risks, complaining about weak consumer demand. Today's release is an eloquent illustration of his words.
How do I trade?
At the moment, the EUR/USD pair is testing the resistance level of 1.1800. This price barrier turned out to be too tough for buyers yesterday and the day before yesterday, although they attempted to storm it. Therefore, until traders overcome this target, it is risky to enter purchases. But with a high degree of probability, buyers will still crush it, given the general weakness of the US currency. In this case, you can open longs with the first growth target at 1.1850.