The euro-dollar pair continues its downward "tour", opening more and more new price horizons. And although by the end of the trading week the sellers of EUR/USD tempered their ardor, they managed to consolidate at the borders of the 16th figure. The last time the pair was in this price area was at the end of November last year, when the dollar was in high demand amid the next wave of the coronavirus outbreak. Today, the "coronavirus factor" also plays a role, but far from the main one.
The uncorrelation of the positions of the Fed and the ECB is the main anchor that pulls the pair to the bottom. Representatives of the Federal Reserve maintained their hawkish attitude, despite the first signs of a slowdown in inflationary growth in the United States. The minutes of the last Fed meeting also added fuel to the fire. The document published the day before yesterday was evidence that the issue of early curtailment of QE was discussed by members of the Federal Reserve back in July. Despite the fact that the July meeting was held even before the publication of the latest data on inflation growth, traders appreciated the mood that was hovering among the Fed members at this meeting. Now dollar bulls are looking forward to the key event of the current month, which will begin next Saturday in Jackson Hole.
We are talking about the economic symposium, in which Jerome Powell and the heads (deputies) of other central banks of the leading countries of the world will speak. It is expected that the chairman of the Fed will "give the go signal" to curtail incentives during the meeting, while at the September meeting, the members of the regulator will already officially announce the appropriate steps regarding QE. On the eve of this event, the dollar is in high demand – traders follow the trading principle "buy on rumors, sell on facts". It is unknown whether the second part of this principle will be implemented, but the first part is being implemented with a vengeance: the excitement around the greenback is gaining momentum, exerting significant pressure on the EUR/USD pair.
And apparently, this pressure will only increase – at least in the medium term. While dollar bulls are living with expectations, the single currency is under the background pressure of the indecisive position of the European Central Bank. This week, the Reuters news agency interviewed more than 30 experts on the prospects for the ECB's monetary policy. Most of the analysts surveyed expressed confidence that the decision on the gradual curtailment of the PEPP will be made by the European regulator no earlier than December of this year. At the same time, many of them also note the existing risks regarding the implementation of this forecast. According to them, the number of new cases of coronavirus in the EU countries is still growing, and uncertainty about the development of the situation with Covid remains (this is especially true for the autumn-winter period). If the epidemiological situation worsens, the European Central Bank is likely to continue buying bonds at the current pace until the end of the year to prevent an undesirable increase in yields. Therefore, the decision on curtailing the incentives will be made in February or at one of the spring meetings.
Such "gloomy" prospects reduce the attractiveness of the single currency, and even more so when paired with the dollar, which is strengthening its position against the background of hawkish expectations of traders. In the American news feeds, it is increasingly possible to meet the assumption that the head of the Federal Reserve may sound a signal at the end of August about his readiness to begin weakening monetary support. Whether this scenario is actually being implemented or not is not so important if we are talking about the prospects of the coming days. To date, dollar bulls are determined, American inflation has not refuted the "hawkish" attitude of the Fed (judging by the comments of many representatives of the regulator after the release), while strong nonfarm payrolls and the minutes of the last meeting of the Federal Reserve speak in favor of tapering incentives. Therefore, the market will live with hopes next week, playing out the implementation of the "hawkish" scenario in advance. The euro is not able to organize "its own game" to restrain the onslaught of dollar bulls or (even more so) reverse the trend. Therefore, it will be possible to catch upward pullbacks to open short positions only due to the temporary weakness of the greenback.
Thus, the prevailing fundamental background for the EUR/USD pair indicates the priority of short positions. The nearest target of the downward movement is the mark of 1.1650 – this is the lower line of the Bollinger Bands indicator on the daily chart. Trend indicators signal the further development of a downward movement: the price for D1 is located between the middle and lower lines of the Bollinger Bands indicator, and the Ichimoku indicator has formed a bearish "Line Parade" signal. The main target of the downward trend is the mark of 1.1610 – this is the lower line of the Bollinger Bands indicator on the W1 timeframe.