04.10.201911:58 Forex Analysis & Reviews: EUR / USD: will the black streak of the dollar continue and will J. Powell's speech become a control shot for him?

It seems that a decrease in business activity in the eurozone to a minimum since 2013 and Markit forecasts of a 0.1% increase in the GDP of the currency block in the third quarter will not surprise anyone. The United States is another matter. Until September, they looked like an island of stability, which is not afraid of headwinds blowing from abroad. On the other hand, ISM US Purchasing Manager Indexes which were released this week showed that the US economy is not as strong as many believe. Following the weak PMI release in the US manufacturing sector, a disappointing US service activity report came out. Last month, the indicator dipped to the lowest level since 2016 - 52.6.

"There were signs of a slowdown in the US economy before, but there were few who suggested that the wheels were already falling off the cart," said Robert Burgess, an expert at Bloomberg.

"Some argue that domestic demand in the United States will remain high, even if external demand weakens. However, over time, consumption in the country will inevitably depend on what is happening outside. The US companies are becoming more cautious about hiring a new workforce, as well as spending planning, "said Minori Uchida, Chief currency strategist at MUFG Bank.

"The US economy is now working on one engine - consumption. Whether the longest economic boom in the history of the country will continue will depend on the ability of American consumers to continue spending so as to compensate for the decline in manufacturing sectors in the context of a trade war with China, "said Stephen Gallagher, Chief Economist at Societe Generale.

Apparently, the American manufacturing sector, burdened by trade disputes, begins to drag the services sector into a quagmire, employment in which, according to ISM, showed the slowest growth in September since 2014. Perhaps, not the best news in anticipation of the September release on the labor market. In August, the number of people employed in the non-agricultural sector of the United States increased by 130 thousand, in June-August - an average of 156 thousand, which is significantly lower than the average since the 2008 economic crisis (190 thousand). If everything goes the same way, then the US economy will create only 1.9 million new jobs in 2019, which will be the worst indicator since 2010 and significantly lower than 2.7 million recorded in 2018.

The EUR / USD pair is growing amid growing talk that the Fed has a much broader potential for monetary expansion compared to the ECB, as interest rates are higher in the US. Following the release of disappointing statistics on business activity in the United States, the chances of easing the Fed's monetary policy in October increased from 40% to 88%.

"The market is almost certain that the Fed at the October meeting will reduce the interest rate by 25 basis points. The step could be sharper - by 50 basis points, if the data on the labor market for September turned out to be dull, and the yield on US bonds continues to fall, "said John Lonski, chief economist at Moody's.

By the end of 2019, the Federal funds rate is expected to fall by 42 basis points and 100 basis points by the end of 2020.

In this regard, the ECB has practically no room for retreat, although the limited potential of monetary expansion may indicate an inability to save the European economy from recession. It is assumed that if the governments of the eurozone countries do not respond to the call of the ECB President Mario Draghi and do not go to the fiscal stimulus, then the euro against the US dollar will drop to $ 1.05. However, few still believe in such a pessimistic scenario. According to the consensus forecast of economists recently surveyed by Reuters, the EUR / USD pair will finish the current year at 1.1, and will reach 1.13 in 12 months.

Thus, the "bulls" on EUR / USD are playing out different speeds of the European and American economies falling into the abyss, as well as the potential for monetary expansion of the Fed and the ECB. The September US labor market report and today's Fed statement by Jerome Powell may add fuel to the fire. The "dovish" rhetoric of the head of the Federal Reserve, combined with weak data on US employment, could push EUR / USD to 1.104-1.105.