The dynamics of the EUR/USD pair is showing contradictory signals ahead of the Jackson Hole symposium. The key elements of the pair, the dollar, and the euro, periodically try to give it a boost but fails. It is hard to pull the EUR/USD pair out of the decline.
Analysts believe that the main currency pair has found itself between the demand for safe-haven assets and the likely tightening of monetary policy. At the moment, there is growing uncertainty about the prospects for the global economy, which is why the demand for safe assets is at its peak. At the same time, the strengthening of economic growth rates is accompanied by a tightening of monetary policy (MCP).
In this situation, the US dollar turned out to be the winner, which took advantage of both factors. The Euro, in turn, had a worse time: it came under the pressure of multi-directional drivers – the status of a "safe haven" asset and the prospect of raising interest rates. The strengthening of the US currency worsened the situation, against which the European one looks confused. The EUR/USD pair is nervously waiting for the meeting in Jackson Hole, the results of which will affect the dynamics of the EUR/USD pair. If the Fed starts cutting back on its asset repurchase program, it will sharpen the contrast between its aggressive policies and the ECB's soft stance. According to economists, a similar strategy of the European regulator pushed the euro to nine-month lows.
An additional negative factor for the euro was the disappointing macro statistics. According to the current IFO report, the German business climate index declined to 99.4 points in August and continues to do so. It should be noted that the reduction is expected only to 100.4 points from the revised July level of 100.7 points. The state of the German economy is affected by delays in the supply of a number of goods and investor concerns amid the growing number of COVID-19 cases. Analysts said that this is extremely negative for the euro, as it strongly affects the normalization of the economy and politics, worsening the likelihood of an interest rate hike.
According to experts, the US economy is recovering faster than the European one, despite the growing inflation in the US, which is increasing at the highest rate in the last 30 years. If business sentiment in the eurozone worsens, especially in Germany, it will be difficult for the European economy to return to pre-crisis levels by the end of this year.
Most economists believe that the "core" of the discussions at Jackson Hole will be the issue of curtailing stimulus programs, which is important for both the Fed and the ECB. Many are sure that the American regulator will start this process earlier than the European one. In the case of such a scenario, experts recommend giving preference to short positions on the EUR/USD pair, especially during periods of corrective growth, for example, to the resistance levels of 1.1780, 1.1800, and 1.1830. On Thursday morning, the EUR/USD pair was moving around the level of 1.1767, sometimes rising higher.
Market participants do not expect any surprises from the Jackson Hole symposium, although they do not rule out such a possibility. This Friday, representatives of central banks and economists will meet to discuss the current problems of the global economy and the prospects for monetary policy. The focus of attention is the speech of Fed Chairman Jerome Powell, on which the further vector of economic movement depends. His comments on the prospects of the Federal Reserve's monetary policy will significantly affect the USD quotes and stock indices. According to the majority opinion, J. Powell assured investors of the Fed's commitment to the current ultra-soft policy.