12.10.202009:35 Forex Analysis & Reviews: EUR/USD. Inside Wall Street Journal, waiting for inflation and ZEW reports

The US dollar index started the trading week with a small Northern gap but it returned again to the borders of the 92nd figure losing all the positions it had won during the Asian session on Monday. The US currency continues to be under pressure even despite the positive news that should have been of some help to it.

However, positive news is only at first glance. On closer look, the situation seems likely to be not so good. The greenback's ongoing decline shouldn't come as a surprise as there might be a problem in details. So, the influential Wall Street Journal reported that the White house agreed to compromise with the Democrats and increased the volume of the bill being discussed to help the US economy to 1 trillion 800 billion dollars. This is a serious concession: previously, the "ceiling" of this amount ranged from 1.2 to 1.5 trillion dollars. At least, such amounts were mentioned by Trump when he recently put an end to the negotiations. But the "dot" later turned out to be an "ellipsis" and negotiations resumed again.

It is worth noting here that the dollar has reacted quite sharply and is reacting to the twists and turns around this bill. Negotiations have been underway since the end of May, when Democrats introduced their three-trillion-dollar bill. It even passed in the House of Representatives, the lower house of Congress, where representatives of The Democratic Party control the majority. However, Republicans who control the upper house of Congress (the Senate) refused to support the initiative of the Democrats, considering it as too costly. This idea was opposed by the White house and personally by Donald trump, who promised to veto the law if it is still supported by congressmen. Then the Republicans proposed their own version of the bill, which amounts to $ 300 billion only. Representatives of the Democratic party criticized and blocked it.

So, against this background, the trump administration agreed to raise the bill's bar by 300 billion or up to 1.8 trillion. But dollar bulls were skeptical of the news for three reasons: First, the announced amount is still significantly less than the one that the Democrats insist on (2 trillion 200 billion). Secondly, the parties cannot find a common denominator about the direct content of the document as it is about the distribution of aid between the country's government and regional authorities. Third, there is a third party in these negotiations – the Republican senators. Many of them oppose such an expensive bill, pointing out the size of the national debt. In other words, even if representatives of the Democrats and the White house come to a common decision, it is far from certain that the bill will pass the millstone of the Upper house of the US Congress.

Actually, for these reasons, dollar bulls were not able to develop the growth of the fungus at the start of the trading week. The market is still very cautious about the US currency especially about tomorrow's release.

The key data on the growth of American inflation will be published in the States tomorrow, October 13. According to preliminary forecasts, they will not be in favor of the dollar especially in light of the updated Fed strategy. Thus, the General consumer price index in monthly terms should grow in September by only 0.2% in monthly terms and by 1.2% in annual terms. The core index, excluding food and energy prices, should show similar dynamics: (+0.2 m/m; +1.6% y/y). As you can see, the forecast is quite weak and if the real numbers are weaker than the forecast, the dollar will again fall under a wave of sales. There are certain prerequisites for this, given the recent non-Farms in terms of salary growth.

We should pay attention to the report of the Center for European Economic Research (ZEW) if we're going to talk about the EUR/USD currency pair. According to them, both in Germany and in the Euro area as a whole, there are negative dynamics expected. The coronavirus factor, the pessimistic IMF report, the "dovish" rhetoric of ECB representatives, slowing inflation, weak German data – all these circumstances can affect the mood of entrepreneurs. But it is worth emphasizing that if the real numbers coincide with the forecast values, the European currency will stay afloat. Otherwise, if the downward trend is more extensive, the EUR/USD currency pair will get another reason for its decline.

In my opinion, the EUR/USD currency pair should be bought on any more or less large-scale downturns in the current conditions. In addition, even if we do not take into account macroeconomic reporting, the dollar is affected by political factors. The chances of Donald Trump winning the presidential election continue to fade, while the probability of a Biden victory is slowly increasing. As the likelihood of political turbulence and even a crisis increases if the current President does not recognize the election results. Let me remind you that in one of his statements, Trump refused to guarantee a peaceful transfer of power. Many investors remember the events of 20 years ago, when the contenders for the # 1 post in the country were George W. Bush and Albert Gore. The elections were held on November 7, and the name of the new President was determined only on December 12. The final word was said not by the election Commission, but by the US Supreme court. Many observers assume that Trump may repeat the path of weeks (or even months) of political and judicial battles.

The first goal of the Northern movement is at 1.1880 – this is the upper line of the Bollinger Bands indicator, which coincides with the upper border of the Kumo cloud on the daily chart. You can view longs either from current positions or from 1.1750 – this is the support level that corresponds to the middle line of the Bollinger Bands, which coincides with the Tenkan-sen and Kijun-sen lines on the same timeframe.