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The US dollar is enjoying the roller coaster. Its fall after the June FOMC meeting was replaced by a rise after the publication of strong employment statistics. Furthermore. Jerome Powell, with his comments on the advisability of reducing the rates, dropped the US dollar index. However, the growth of retail sales, industrial production and the improvement of forecasts for GDP returned the dollar to their original positions. Thanks to the "dovish" rhetoric of Fed officials and weak data on German producer prices, the EUR/USD pair pulled off the trick with the hat once again.
This behavior of the main world currency is the result of investors' doubts about how the Fed will reduce rates in July, as well as how its competitors will react to this. Uncertainty is increasing due to rumors about Washington's currency interventions that are circulating on the Forex market. For the first time since 2011, the Treasury can be active, although Steve Mnuchin at the conference of bankers in Paris said that the policy against the dollar remains unchanged. Although it may change in the near future. In the meantime, investors are forced to focus on the derivatives market, the instruments of which in the middle of the summer pretty feverish.
In particular, attention is drawn to the change in the chances of reducing the Fed rate by 50 bp at the next meeting. After the previous meeting, they soared above 40%, after the release of employment data – collapsed to the level of 2%, but FOMC officials raised them again. Thanks to the fiery speech of John Williams that the Central Bank should act aggressively in conditions of low borrowing costs, the indicator soared to 70%. Representatives of the FRB of New York even had to explain that their head did not mean the current situation and academic research.
The dynamics of the probability of changes in the Fed rate in July
In fact, the dynamics of EUR/USD in the week to July 19 was determined exclusively by the dollar, but it was worth the euro to show its weakness, as the bulls abandoned the idea of storming the resistance at 1.1285 and 1.13. German producer prices, the leading indicator for inflation, fell by 0.4% m/m in June, which increases the risks of ECB rate cuts. According to most Reuters experts, the Central Bank will do it in September. 40% of more than a hundred respondents believe that it resuscitates QE. In the previous survey, the figure was 15%.
The key events of the week by July 26 will release data on European business activity for July and US GDP for the second quarter, which will demonstrate how the economies of the Old and New World have adapted to external shocks, as well as a meeting of the ECB Governing Council. From Mario Draghi, investors are waiting for a hint of a weakening monetary policy in September. Can't wait – the euro will fly. However, sales on the rumors of EUR/USD on the eve of an important meeting may end with purchases on the facts.
Technically, the diamond-shaped bottom pattern is still relevant to the daily chart of the pair. The breakthrough of the lower border of the triangle near the support at 1.12-1215 will allow the bears to count on the continuation of the peak to 1.1135 and below. On the contrary, a successful assault on the resistance by 1.13 and 1.1325 increase the risks of implementing the target at 161.8% according to the model AB=CD.
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