30.09.202018:47 Forex Analysis & Reviews: EUR/USD. Weak euro, weak dollar: conflicting signals keep the pair in the grip of a flat

The euro/dollar pair continues to show contradictory dynamics. The US dollar index, which initially ignored the debate between Trump and Biden, began to gain momentum at the start of the US session on Wednesday. According to a CNN poll, the head of the White House lost the first round of a verbal duel. This fact provided small support to the greenback, which showed itself in almost all dollar pairs. The European currency, in turn, continued its downward movement throughout the market, amid a decline in German inflation and unexpected statements from the ECB representative. Also, today, the lower house of the British Parliament still adopted the scandalous bill "on the internal market of the UK", crossing out some points of the Brexit agreement and jeopardizing the conclusion of a trade deal. News from London also undermined the euro's position, adding to the negative fundamental picture.

However, let's start with American events. As mentioned above, traders initially ignored the debate of candidates for the post of President of the United States, although this event is the most important stage of the election race. Such a phlegmatic reaction was because it was impossible to determine a clear winner based on the results of the "battle". Trump showed his assertiveness, however, Biden did not look like a "whipping boy". If you believe the results of a CNN poll, the speech of the democratic leader was liked by 60% of viewers, while Trump scored only 28% of likes. If we look at the structure of the survey, we will see that 65% of respondents believe that Biden's answers were "more truthful", and his claims to the current President are "fairer". Trump has these indicators at 29% and 32%, respectively.

Similar surveys of local TV channels show similar results. Therefore, with a certain degree of probability, we can assume that the first round of the debate remained for Biden. Against this background, the dollar gained at price, although it remained paired with the euro in a wide-range flat. The US economy growth data for the second quarter published today did not help the American either. The final figures were revised to improve, but given the "depth of the fall", they remained in negative territory. So, the volume of US GDP decreased in the second quarter by -31.4% (initial estimate – 31.7%), the price index of GDP fell by 1.8% (instead of a two-percent decline). As you can see, the indicators "improved" very slightly, so the market ignored this release.

Dollar bulls also ignored the ADP report, which came out better than expected. According to experts of this agency, the number of people employed in the US private sector in September increased by 749 thousand (with a forecast of growth of 650 thousand). However, traders ignored this release due to its low correlation with Non-Farm (for several months, indicators were released randomly, although previously a high level of correlation with the official report was recorded).

On the other hand, the greenback is still under background pressure due to political differences between Republicans and Democrats. Today, US Treasury Secretary Steven Mnuchin said that approximately by Friday, it will be clear whether representatives of both parties and representatives of the White House will be able to find a common denominator in the adoption of the financial assistance program. Given the fact that the Democrats introduced their bill for $ 2.2 trillion on Monday, we can assume that the parties will not sit down at the negotiating table.

The European currency, in turn, also can not show character against the background of recent events. In particular, data on the growth of German inflation for September were published yesterday. The indicators disappointed traders: both in monthly and annual terms, they went further into the negative area. It is worth noting that on Friday, pan-European inflation indicators will be published, so negative signals from Germany alerted investors.

Also, the European currency was under pressure for another reason. The fact is that today the ECB member Francois Villeroy de Galo (the head of the Central Bank of France) made an unexpected statement, saying that the European regulator will take a course on the average inflation target. In other words, the official admitted that the ECB could go the Fed's way. Let me remind you that at the end of August, the Federal Reserve revised its monetary policy strategy, becoming more "tolerant" of rising inflation. The new strategy of the US Central Bank allows the regulator to keep base rates at the current record low level for a longer time. Figuratively speaking, the Federal Reserve agreed to "tolerate" inflation at a level above two percent, without tightening the parameters of monetary policy. This fact put a lot of pressure on the dollar.

And so, the ECB members want to adopt a similar strategy. It is noteworthy that the European currency reacted rather weakly to Villeroy's words. This can be explained by two factors. First, the head of the Bank of France only allowed such a scenario. Whether his colleagues will support him in this matter is an open question. Secondly, the target level of the European Central Bank is currently too far from the current values to make any calculations in the context of time benchmarks. Therefore, market participants, after some fluctuations (after Villeroy's speech, there was increased volatility), decided not to panic ahead of time.

Thus, an ambiguous fundamental picture emerges in the "dry balance". Both the dollar and the euro are showing weakness and uncertainty. This is the reason for today's flat: traders can't "catch on" to one or another fundamental factor to get the pair out of the price range of 1.1805-1.1630. The "ceiling" of this corridor corresponds to the upper boundary of the Kumo cloud on D1, and the lower level corresponds to the lower line of the Bollinger Bands indicator on the same timeframe. When approaching the upper limit of the range, it is advisable to consider short positions.