The EUR/USD pair is trying to break out of the 0.9750-0.9850 range, within which it was trading throughout the previous week. And judging by Monday's dynamics, bulls are not going to give up without a fight. They continue to counterattack, taking advantage of the simultaneous weakening of the dollar and the strengthening of the euro.
Looking ahead, it should be noted that despite the rather strong intraday volatility, the pair de facto continues to trade in a flat. At the moment, the EUR/USD bulls are trying to gain a foothold above the upper limit of the price echelon, but they made similar attempts last week as well. Therefore, it is still risky to open long positions now, despite the fighting spirit of the bulls on the pair.
In my opinion, the upward dynamics of EUR/USD is due to three main factors. Firstly, this is a decrease in gas prices in Europe, secondly, an increased interest in risk, and thirdly, dovish rumors around the Federal Reserve. These fundamental factors play on the side of bulls who are trying to develop the upward corrective movement. On the side of the bears are the disappointing PMI indexes, published in key European countries on Monday.
Let's start with blue fuel. Gas prices are falling in Europe, amid fairly warm weather and (most importantly) almost full storage. In particular, the total level of natural gas in underground storage facilities in Germany is already 97%. Moreover, according to available information, in northwestern Europe, at least until mid-November, the air temperature will be significantly above the seasonal norm, and this fact will limit the level of gas withdrawal from storage facilities. Amid such news, the front gas futures in the Dutch hub TTF fell in price by almost 15% in the first half of the day - to 97 euros per megawatt-hour. The price of gas calculated "tomorrow" at TTF collapsed immediately by 38%, that is, to 31 euros per megawatt-hour. November futures fell to $989 per 1,000 cubic meters for the first time since June 14. As you know, the price of gas at the Title Transfer Facility is used as a benchmark for the supply of liquefied natural gas to Europe.
In other words, the "gas issue", which plunged the euro a few months ago, has now turned out to be on the euro's side. In turn, the US dollar index is already circling around the 111th figure, amid circulating rumors that the Fed may take a less hawkish stance relative to the expectations of most market participants at the November meeting.
No one doubts that the Fed will raise rates by 75 points in November - the subject of discussion is further prospects for tightening monetary policy. According to the CME FedWatch Tool, there is currently a 52% chance of a rate hike following the December meeting.
And here, some experts recalled a very controversial phrase in the minutes of the September Fed meeting: "some participants indicated that in the future it will be important to calibrate the pace of further policy tightening in order to reduce the risk of a negative impact on the economic outlook, especially in the current, highly uncertain global economic and financial conditions" .
However, in my opinion, analysts discussing this wording in the context of a possible calibration by the Fed exaggerate the degree of "danger".
Firstly, all the wordings of the Fed minutes are scrupulously checked, so the semantic difference between the phrases "many participants" and "some participants" is very large. Secondly, the formulation does not contain a time lag. That is, it is not known - after what events (obviously related to the slowdown in inflation in the US) the central bank is ready to reduce the pace of the rate hike. Thirdly, in the minutes of the September meeting there is the following phrase: "many members of the Committee stressed the need to maintain restrictive measures for as long as necessary."
All this suggests that the aforementioned dove formulation is unlikely to indicate a decrease in the degree of heat in the Fed's camp. Especially amid the release of the latest macroeconomic data on inflation in the US.
However, the greenback is under pressure right now. It should also be noted that the market has increased interest in risky assets, after the release of Chinese data. It became known that China's GDP growth accelerated to 3.9% in the third quarter. The growth rate of the Chinese economy accelerated significantly, given the fact that in April-June this figure grew by only 0.4%.
It is noteworthy that the European macroeconomic statistics that came out in the red zone did not break the "morale" of EUR/USD bulls. PMI indices in the manufacturing sector and in the service sector were again below the 50th mark. A particularly sad situation has developed in Germany - the German index of business activity in the manufacturing sector fell to 45.7 points. This is the weakest result since June 2020. The indicator has been actively declining for the second consecutive month.
However, the increased interest in risk, the stabilization of the political situation in the UK (former Treasury Secretary Rishi Sunak became the country's prime minister) and concerns about the future actions of the Fed "did their job": the dollar came under significant pressure.
At the moment, the EUR/USD pair is testing the upper line of the BB indicator on the four-hour chart (0.9890). In my opinion, it is advisable to open longs only when settling above this target, that is, after traders enter the area of the 99th figure. If the bulls fail to consolidate their success, the pair is likely to return to the 0.9750-0.9850 range.