The euro-dollar pair froze in anticipation of the main event of this week - the July Fed meeting, the results of which we will know tomorrow. But today, traders traded against the background of controversial macroeconomic statistics, which came from Europe and the United States. The US president also has a definite influence on the market with his harsh statements against China, despite the talks that started in Shanghai today. The ambiguous fundamental picture does not make it possible for dollar bulls to continue the downward trend, while the European currency is not capable of even more or less a large-scale correction. As a result, EUR/USD fluctuates in the middle of the 11th figure in anticipation of powerful news drivers.
Tuesday's European trading session ended in favor of the euro - the pair's price rose to a mark of 1.1160. Traders were pleased with relatively good data on the growth of French GDP: the figure rose to 1.3%. The indicator is growing for the second quarter in a row after a 4-quarter decline period. Although the growth was low and predictable, in the current situation, the euro responds positively even to minimal hints of a recovery in the eurozone. Especially since, following the French data, Germans followed, who also came out in the "green zone". A key indicator of inflation was published in Germany today - the consumer price index. In monthly terms, it came out at the level of 0.5%, exceeding the forecast level (indicator growth for the second month in a row). In annual terms, a similar dynamics was recorded - the index continued the positive trend of June, rising to 1.7% in July. These figures were published on the eve of the release of the European inflation indicator, therefore, they provided some support for the euro. It can be assumed that tomorrow's data will also come out better than expected, whereas, according to preliminary forecasts, the CPI will slow down to 1%, while the core index will go down to 0.9%.
Despite little support from European statistics, the correctional growth of EUR/USD did not last long but only for just a few hours. During the US session, the price returned to previous positions and even updated its daily low. Dollar bulls cheered after the publication of the indicator of consumer confidence in the United States. After a decline to two-year lows, the indicator jumped to 7-month highs, that is, to a mark of 135.7 points. The last time the index was at such heights was in November last year, so the dollar index responded to this fact with an increase of 98 points to the boundary.
However, the US trading session has not been without unpleasant surprises from macroeconomic reporting. The Fed's most "favorite" inflation indicator, the RSE, showed rather weak growth, reinforcing fears about a rise in US inflation as a whole. The main index of personal consumption expenditures has fluctuated in the range of 1.5% -1.6% since March of this year, and according to general forecasts of experts, today it should have shown an increase to 1.7%. But the real numbers disappointed - the figure remained within the designated band (1.6%). On a monthly basis, stagnation has also been recorded - since April, the RFE has reached 0.2% m/m.
Although this result is not catastrophic, the dollar still suspended its growth throughout the market, including paired with the euro. Inflation is still the "weak link" in the US economy, so traders remain concerned about the possible reaction of the Fed. According to the baseline forecast, the Fed will lower the rate by 25 points tomorrow, after which it will take a wait-and-see position. But political pressure from the White House, as well as weak inflation, make investors nervous in the run-up to the July meeting. And although the likelihood of reducing the rate by 50 points at once is extremely small, Powell may announce further steps to ease monetary policy. The today's release of RSE once again reminded traders of such a probability.
Also, one should not forget about external fundamental factors that also influence the position of the Fed members. Today the next round started (the 12th in a row for the entire period of the trade war) of the US-China trade negotiations. Despite the fact that the negotiation process has just begun, Donald Trump has already expressed his skepticism about his prospects.
He suggested that the Chinese are deliberately delaying time, avoiding the escalation of the trade conflict and at the same time hoping for a change of power in the United States next year. At the same time, Trump warned that if during the period of his first cadence the parties do not conclude a trade agreement, then during the second cadence (in reality of which he has no doubt, contrary to numerous opinion polls, not in his favor), the deal will be concluded on more stringent conditions for China or not will be concluded at all. Also, the US president made it clear that the current trade negotiations are unlikely to end effectively, although at the same time he expressed optimism about the possible outcome of the negotiation process as a whole.
Thus, the prevailing fundamental picture is contradictory. The dollar is under pressure from possible actions (intentions) on the part of the Fed, while the euro is in anticipation of key inflation data. As a result, most EUR/USD traders preferred to take a wait-and-see position, after which the pair's price froze in the flat. But this calm promises to be short-lived: if tomorrow the head of the Federal Reserve hints at maintaining the status quo after the rate has been reduced, the dollar will strengthen its growth and, together with the euro, will enter the 10th figure. If Powell does not exclude the option of reducing the rate in September (or at any meeting until the end of the year), the EUR/USD pair will return to the first resistance level of 1.1210 - this is the middle line of the Bollinger Bands indicator on the daily chart.
