The EUR/USD pair intends to test the lower border of the 1.1800-1.1900 range, within which it has been trading over the previous week. And although intraday price fluctuations occur within the designated range, the pair is under significant pressure – any attempts for an upward correction are hindered by the EUR/USD bears. The general fundamental background contributes to the strengthening of the US dollar: the strong Nonfarms, which were published last week, allow traders to maintain the "hawkish" mood on the part of the Fed representatives.
A record increase in US inflation amid the rise in the number of people employed in the non-agricultural sector (the maximum of this year was recorded in June) has also increased demand for the US dollar. Meanwhile, the euro is under pressure from the ECB's "dovish" position. Given the slowdown in key inflation indicators in Europe, it can be assumed that the next meeting of the European Central Bank will also not be in favor of the Euro currency.
The secondary (but no less important) macroeconomic indicators are also putting pressure on the euro. In particular, Germany's disappointing industrial production data, which were released today. Contrary to growth forecasts, the indicator came out in the negative area (-0.3% m/m). It should be recalled that the EUR/USD buyers were disappointed by the German business sentiment index: it immediately collapsed to 63 points, showing the weakest result since January of this year. In general, this indicator showed a similar trend in Europe. If the all-European ZEW index was at the level of 81.3 points in June, then the following month, it immediately fell to 61 points. As mentioned above, European inflation also disappointed traders last week: the general consumer price index was at 1.9% in June (after reaching a 2% level in May), and the core index, excluding energy and food prices, plunged to 0.9% after a 1% increase in May.
In view of the inflation, which has updated multi-year records this year, European indicators look quite weak. The labor market in Europe is gradually recovering, but even here, the US gives a head start to the European Union. For example, according to the June Nonfarm reports, the number of people employed in the non-agricultural sector increased by 850 thousand last month, although the preliminary forecast was at the level of 700 thousand. The indicator has been growing over the past two months.
However, we believe that it is not the macroeconomic reports that set the tone for trading but the actual uncorrelation between the positions of the Fed and the ECB. Following the June meeting, the US Federal Reserve tightened its rhetoric, providing substantial support to the US currency. And although the regulator maintained the status quo and did not even discuss the issue of curtailing QE, the hawkish notes of the accompanying statement allowed the dollar bulls to organize a large-scale rally. The point forecast, which allows for a double rate hike in 2023, overshadowed all other fundamental factors. At the same time, most representatives of the European Central Bank continue to voice "dovish" rhetoric.
That is why EUR/USD traders actually ignored the disappointing business activity index in the US service sector from ISM yesterday. The indicator declined to 60 points, contrary to positive forecasts – experts expected to see this indicator at the 65-point mark. The US currency reacted only "formally" to the publication, continuing to gain impulse throughout the market. In turn, the Euro currency reacts more sharply to its statistics, which only adds to the gloomy fundamental picture.
On another note, it is impossible not to discuss the coronavirus factor. After three months of respite, the European Union is experiencing an increase in the number of COVID-19 infections again. At the same time, vaccination in European countries is not moving fast enough. According to the World Health Organization, the total coverage in Europe is only 25%. At the same time, half of the elderly and almost half of the medical workers have not yet been immunized. Given the current conditions, as well as the spread of the dangerous delta strain, many experts warn that a new wave of a pandemic will cover again the European countries by autumn.
The United States is also ahead of Europe here. According to the latest data, the number of Americans who have completed a full course of vaccination against coronavirus has reached 160 million (about 60% of the population). More than 182 million US citizens have received at least one dose of the vaccine, including about 90% of the elderly population, and 70% of adults starting from the age of 30.
Thus, the fundamental picture for the EUR/USD pair is in favor of the US currency. But at the same time, the bears have not yet decided to attack the support level of 1.1800. To do this, sellers need enough strong information event that will not only allow them to break through the price barrier impulsively but also consolidate within the 1.18 mark. In this case, today's attention will be focused on the minutes of the last Fed meeting, which will be published at the end of the US session on Wednesday. This document can become a starting point in terms of strengthening the US currency, but only in one case: if the Federal Reserve outlines more specifically the time frame for reducing the volume of asset purchases. If the regulator confirms and concretizes its "hawkish" intentions primarily regarding QE, the EUR/USD pair may already enter the area of the 17th price level today. Therefore, any more or less large-scale growth of the pair should still be used to open short positions with the first target of 1.1806 (three-month price low) and the main target of 1.1750 (lower line of the Bollinger Bands indicator on the daily chart).