17.07.201901:34 Forex Analysis & Reviews: EUR/USD: potential decline to 1.1170 and a "powder keg" for dollar bulls

Bears of the EUR/USD pair managed to overcome the support level of 1.1230, which corresponded to the Kumo cloud boundaries on the daily chart, and then headed towards the 11th figure - or more precisely, to the next support level of 1.1170 (the bottom line of the Bollinger Bands indicator on D1). The overall market situation is unequivocally negative for the euro and fairly neutral for the dollar. However, today the US currency received support from retail sales in the US, while the single currency received another blow from the German statistics.

Thus, the euro was pressured by figures from the ZEW Institute. In particular, the sentiment index in the business environment of Germany dropped immediately to the level of -24.5 points - this is the most negative result since last November. Analysts expected a negative trend, but, according to their forecasts, the indicator should have dropped to -22.7 points. In Europe as a whole, this indicator also remained at semi-annual lows, having stood at -20.3 points. At the same level, the indicator was released last month. After the surge of optimism in April, when for the first time in 2 years, both in Germany and in the EU as a whole, they were above zero, this dynamic looks depressing, and this fact had a corresponding impact on the single currency. Judging by the rhetoric of members of the ECB, the central bank is ready to use its whole arsenal of available actions in the fall. In particular, we are talking about the bond purchasing program and reducing the interest rate. Not so long ago, the head of the ECB acknowledged that many of the early indicators warn of a worsening situation in the eurozone, so the risks for forecasts remain downward.

By the way, tomorrow's data on the growth of European inflation may put additional pressure on the euro if they are revised downward. We will know the final data for June. According to initial estimates, the overall consumer price index rose to 1.2%, while the core index rose to 1.1%. According to the general opinion of experts, core inflation will be subject to revision - the indicator can be reduced to 1%. In this case, bears of the EUR/USD pair will have another reason to sell the single currency, and the price will certainly be consolidated within the 11th figure.

Moreover, the greenback's growth is fueled by fairly good statistics from the United States. Today, dollar bulls have pleased retail sales. Contrary to negative forecasts, indicators of consumer activity have not decreased, but in fact remained at the level of the previous period. The overall figure, as well as the figure excluding car sales, grew in June by 0.4% (with a decline forecast to 0.1%). Excluding auto and fuel sales, the indicator has been growing for the second month in a row, reaching 0.7%. Against the background of the growth of key macroeconomic indicators (strong Nonfarm and positive dynamics of inflation), these figures have provided significant support to the dollar. I note that Jerome Powell, in the course of his speeches and without this release, stated the intensification of consumer activity. He associated the main risks for the Fed with other factors (first of all, we are talking about geopolitical risks and reducing the volume of business investments).

Nevertheless, today's release made it possible for dollar bulls to once again show character - in almost all pairs, the greenback strengthened their positions, and the EUR/USD pair was no exception. In general, the dollar is gradually gaining momentum throughout the market, and either Powell or Trump can hinder this process. Here it is necessary to emphasize the fact that the Fed's July interest rate cut is largely taken into account in prices, so any reminder about this on the part of the US central bank's members is quite calmly perceived by the market. Dollar bulls fear only aggressive rates of monetary policy easing - for example, a one-time cut in the rate by 50 basis points or the beginning of a decline cycle. The "precautionary" rate cut of 0.25% was largely played by the market, especially after the Fed head's dovish speech in Congress, during which he actually announced the relevant intentions of the regulator.

In my opinion, the greatest danger to the dollar is not the Fed, but Donald Trump, who repeatedly expressed outrage at the overvalued exchange rate of the national currency. According to Bloomberg, the US president has already instructed his advisers to develop a strategy to weaken the dollar. According to insider sources, Larry Kudlow, the chief economic adviser to the president, and Stephen Mnuchin, the minister of finance, opposed any US intervention to weaken the greenback. But according to Trump, an overly expensive dollar is almost the key obstacle to a country's economic growth. In turn, economic growth, according to the head of the White House, should provide him with a second presidential term. Here it is worth noting that the overwhelming majority of opinion polls are giving a definite advantage to former Vice-President Joe Biden. Even the Fox News channel, which clearly sympathizes with Trump, acknowledged this fact. According to their polls, Trump is almost 10% behind Biden.

Thus, good news for dollar bulls is that the greenback has acquired "immunity" regarding the Fed's stated intentions to cut the rate by 25 points (and more aggressive measures are unlikely to be applied). In addition, US statistics also provide background support for the dollar. The bad news is that Trump may initiate currency interventions, especially if the US currency continues to rise in price across the entire market. Taking into account such (possible) perspectives, dollar bulls sit on a "powder keg", which can jerk at any moment.

From a technical point of view, the EUR/USD pair has the potential to fall to the bottom line of the Bollinger Bands indicator on the daily chart, which corresponds to the mark of 1.1170. If the bears overcome this support level (which is unlikely within the next few days), the pair will head to the bottom of the 11th figure, that is, to the bottom line of the Bollinger Bands indicator on the weekly chart.