FX.co ★ EUR/USD. Upward attack ended in failure: Nonfarm report looms on the horizon

The euro-dollar pair has been besieging the resistance level of 1.1890 for the second week, which corresponds to the upper line of the Bollinger Bands indicator on the D1 timeframe. The results of the July Fed meeting, announced last Wednesday, disappointed traders, after which bulls of the EUR/USD pair "rushed into battle", gaining new price heights. However, the fighting fervor of the bulls faded quickly enough. As soon as traders impulsively overcame the 1.1900 mark, they began to take profits en masse, as if they were afraid of their own success. At the same time, the bears opened short positions, increasing the pressure on the EUR/USD pair. The upward attack ended in a fiasco, however, the bears could not seize the initiative due to the general weakening of the greenback. Data on the growth of the US economy in the second quarter increased pressure on the US dollar, as a result of which the pair was stuck in a narrow price range of 1.1850-1.1890 (the Kijun-sen line is the upper line of the Bollinger Bands on D1).

A half-empty economic calendar does not contribute to resolving the current situation. Traders are forced to play back the main events of July in anticipation of the next information driver. Current macroeconomic reports have little effect on the mood of investors. For example, yesterday the ISM manufacturing index was published in the United States, which unexpectedly came out in the red zone, falling short of the forecast values. With the forecast of growth in July to the level of 60.8 points (a small increase compared to June), the indicator turned out to be at the level of 59.5 points. This is the worst result since January of this year. The indicator of the dynamics of growth in commodity prices (the price component of the ISM index) also disappointed, being at the level of 85.7 points (with a forecast of growth to 88 points). Despite the blatantly disastrous report, traders reacted to it quite restrained. The EUR/USD pair once again tested the resistance level of 1.1890, but almost immediately retreated deep into the above price range. And this is despite the fact that the US dollar index reacted quite sharply to yesterday's report, falling to the area of the 91st figure.

All this indicates the indecision of both bulls and bears of the euro-dollar pair. The fact is that Non-farms are already looming on the horizon, which can determine the vector of further price movement. Friday's release is sure to provoke increased volatility, especially if the official results differ significantly from the forecast values. Preliminary forecasts indicate that the unemployment rate in the United States will fall to 5.7% (the lowest value since March last year), and the number of people employed in the non-agricultural sector will grow by 900,000. According to some analysts (in particular, currency strategists of the ING banking group), if the number of jobs created exceeds the millionth mark, the market will resume talking about the fact that the Federal Reserve may announce the curtailment of QE already at the September meeting. And here it's not just that the indicator will cross the psychologically important million mark – in this case, the trend is important. The indicator has been consistently growing over the past three months: 278,000 jobs were created in April, 580,000 in May, and 850,000 in June. As mentioned above, the positive trend should continue in July.

Strong Non-farms can strengthen the uncorrelation of the positions of the Fed and the European Central Bank. After all, despite the fact that the US central bank maintained a wait-and-see position at the July meeting, representatives of the central bank admitted that the topic of curtailing QE is still on the agenda. According to the general opinion of experts, the first relevant signals may be announced at one of the Fed's autumn meetings. The steady growth of the main indicators of the US labor market will only strengthen the hawkish expectations of investors, pushing the dollar to another rally. At the same time, the ECB's position is categorical - most representatives of the ECB do not even allow the option of early curtailment of incentives.

In my opinion, the uncorrelation of the positions of central banks will continue to put pressure on the pair. EUR/USD bears only need an additional argument that would offset the disappointing release of data on US GDP growth in the second quarter. Let me remind you that this indicator increased by 6.5% (year-on-year), while most experts expected to see it much higher-at around 8.5%. However, it should be noted that the growth of real GDP in the second quarter was mainly due to consumer spending. Real spending on personal consumption jumped by almost 12%, exceeding the forecasts of most experts. All key categories of expenses showed a significant (and in some cases, a record) increase. It should be emphasized that the American economy has officially returned to the indicators that were observed before the outbreak of the coronavirus epidemic, but due to the inflated requirements of most experts, the key indicator came out in the red zone. This suggests that strong Non-farms will help restore dollar bulls' self-confidence due to the growth of hawkish expectations.

But there are still a few days left before Friday's release, and until then, apparently, EUR/USD traders will have to hang out in a flat. Given the bulls' inability to settle in the area of the 19th figure, it is advisable to consider short positions when approaching the 1.1900 mark or testing the 19th price level. The target of the downward pullback is the level of 1.1850 (Kijun-sen line at D1). The main support level is the middle line of the Bollinger Bands on the same timeframe, which corresponds to 1.1810.