EUR / USD: ignore the FRS protocol
So, the EUR/USD pair was able to cross the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line of the Ichimoku Kinko Hyo indicator, thereby gaining above the resistance level of 1.1540. This fact can be recorded in the total asset of the bulls’ EUR/USD achievements, especially since they did not stop there and currently test the 16th figure.
The US currency, in turn, is actively giving up positions: the dollar index has now dropped to the 94th figure, although last week it updated its annual high, reaching 96.5 points. Among EUR/USD traders, there is now an active struggle for the 16th figure: the pair’s bulls need to stay in this price area in order to demonstrate their advantage. Bears have a more difficult task: to return the price below the level of 1.1540, thus provoking a large-scale price retracement.
The fundamental picture that has been formed in recent days does not allow the dollar to be aggressive. The US currency is forced to reckon with a serious opponent in the person of the US president, who has taken the path of its further growth. The incessant criticism of Trump against the actions of the Fed is making the traders nervous. And the reaction of the market turned out to be undulating. Contrary to the opinion of some experts that Verbal intervention by Trump will have a short-term impact, the configuration of dollar pairs has changed quite seriously. For example, the USD/CHF pair moved away from the parity area by almost 200 points, and the pound returned for the first time in 2.5 weeks to the 29th figure. The EUR/USD pair also continued the northern movement, thus forming a price bottom at the bottom of the 13th figure.
It is interesting to look at the monthly EUR/USD chart, or rather, on monthly candles: during the whole summer, the bears tried to squeeze the price out of the range, but in each case they failed. So, in June, the monthly minimum was at the level of 1.1508, in July – at 1.1575, this month – 1.1301. Despite such bearish pressure, the pair each time closed the month on the border of 16 and 17 figures. Among the figures given, August stands out, which renewed the price minimum for the year at the base of the 13th figure. This is due to the economic crisis in Turkey, which jeopardized the stability of the banking sector in Europe. If it were not for the “Turkish factor”, the last month of the summer would certainly not be different from its predecessors – in other words, the pair would fluctuate in the price range of 1.1510-1.1705. However, despite such force majeure, the EUR/USD pair, by all accounts, will not break the tradition of this summer, having completed the month in approximately the same price area where it started.
All this suggests that in the long run, traders did not determine the vector of the pair’s movement. The EUR/USD pair was actively declining during April and May, but having reached the region of the 15th figure, the southern impulse lost its force, and the pair actually fluttered – the monthly time frame is eloquent. Obviously, even such a long and wide-range flat has its borders, primarily of a temporary nature. In my opinion, the pair will be able to break out of the above price range due to several factors.
First of all, these are trade relations between the US and China. If the rumors of a pending armistice are justified, then the fundamental background for the dollar will change quite noticeably. Now the dollar is viewed as an “island of security” in the light of increased geopolitical risks. Once these fears are leveled, traders will focus on the macroeconomic indicators of the EU and the US, in the light of the prospects for the actions of the Fed and the ECB.
And here the dollar will not have such an unequivocal advantage, especially if you remember the latest statements of Donald Trump. And especially if the US economic indicators begin to show a decline. For example, according to many experts, US GDP in the third quarter will not stay within four percent (as in the second quarter), but, most likely, will be below three percent.
The strengthened dollar will have a corresponding impact on the sphere of foreign trade, especially in terms of exports. For the same reason, inflation may slow down. And here it is worth considering that Donald Trump blames the Federal Reserve for the rise in the price of the national currency – so if in the third quarter there is a decline in key indicators, the US president will increase public pressure on the Fed. And by and large it does not matter whether the members of the regulator will listen to Trump’s criticism or not. The events of recent days show that the market is very sensitive to the verbal intervention of the head of the American state.
Summarizing the above, it should be noted that the current correctional growth of the pair EUR/USD looks quite logical, if we consider the logic of the pair’s movement in recent months. Today’s publication of the Fed’s protocol is unlikely to change the mood of traders. Moreover, I would recommend not to trust the market’s reaction to today’s release, because tomorrow or the day after tomorrow we will learn the first results of the US-China talks, and this factor can completely redraw the fundamental picture of the pair EUR/USD. All other events (except Friday’s speech by the head of the Fed in Jackson-Hole) are of secondary importance.