17.09.201900:47 Forex Analysis & Reviews: EUR/USD: The ECB has made its move, now it's up to the Fed

The discrepancy in the ranks of the ECB Governing Council over the resumption of the quantitative easing program (QE) and the strongest since 2009, growth in average salaries in the eurozone in the second quarter (by 2.7% on an annualized basis) pushed the EUR/USD pair to two-week highs. However, the bulls failed to gain a foothold above the important resistance level of 1.1085-1.1095. Last August, US retail sales data for August showed that the US economy is still in good shape, which casts doubt on the feasibility of an aggressive interest rate cut by the Federal Reserve. This raises the question: is it too early to sell the greenback?

The EUR/USD roller coaster at the end of the September meeting of the European Central Bank gave rise to another talk about Washington's possible intervention in the life of forex. The 1934 Act provides the U.S. Treasury with broad powers in this matter. However, without the participation of the Fed, currency intervention to weaken the dollar is unlikely to be effective. Jerome Powell and his colleagues would rather not be involved. Otherwise, regulator independence may be at risk.

The main reasons for the recent take-off of the main currency pair were a split in the ranks of the ECB and a lower QE than investors expected.

Klaas Knot, the head of the central bank of the Netherlands, believes that in the current environment quantitative easing is not required at all, and he doubts the effectiveness of the program. The Bundesbank president, Jens Weidmann, has a similar point of view.

"The situation in the eurozone is not so bad, so I do not see the need for such a large-scale stimulus package," he said.

According to the Financial Time, there were not 5, but 9 dissenters at the September meeting of the Governing Council of the ECB.

It is noteworthy that in the camp of "hawks", there were such eternal opponents as Germany and France. The first was severely affected by trade conflicts due to the significant share of exports (over 40%) and industrial production (23%) in GDP, however, it faces accelerated wage growth. The second does not experience such difficulties as the "locomotive" of the eurozone, and believes in the strength of domestic demand.

After the ECB meeting, Goldman Sachs raised its three-month forecast for the EUR/USD rate from 1.08 to 1.10.

"The single European currency is likely to show sharp growth in the event of any significant increase in fiscal stimulus in the eurozone. The ECB's lack of room for maneuver could prompt national governments to take such actions, "said Goldman Sachs.

Meanwhile, no less split is expected in the ranks of the FOMC. Some officials who are guided by internal macrostatistics are not eager to cut interest rates. Others focus on external risks and are prepared to mitigate monetary policy for preventive purposes. Economists recently surveyed by Bloomberg forecast two acts of monetary expansion from the Fed - in September and December. It is estimated that the federal funds rate will drop to 1.75%, after which the US central bank will take a long pause. Expectations of easing monetary policy by the Fed may allow the bulls on EUR/USD to re-test the resistance level of 1.1085-1.1095.