The USD index continues to move confidently to the north.
The US dollar strengthened against all major currencies, except for the Canadian dollar. This dynamic was driven by conciliatory rhetoric from Washington and Beijing, positive statistics from the United States, and rising US stock indexes.
The revised US GDP data for the second quarter seemed to disappoint the dollar "bulls", as the figure was below the initial estimate (+2% vs. +2.1), but spending on personal consumption rose at the highest rate since the fourth quarter of 2014 – 4.7% against the expected 4.3%. Apparently, in April-June, American households were not afraid of the trade war. It allows to speak about the strength of the economy, and the divergence in the economic growth of the United States and the rest of the world, as you know, acts as a loyal assistant to the greenback.
The slowdown in German inflation and the statement of the future President of the ECB Christine Lagarde that the regulator has at its disposal the tools that can save the eurozone from a recession, allowed the "bears" of the euro to go on the attack and sent EUR/USD to four-week lows.
Investors have been selling the euro throughout the week, and now the EUR/USD pair is on the threshold of testing the mark of 1.10.
The trade war unleashed by the White House has already hit the main competitors of the United States, while America itself is only beginning to sense their consequences. Therefore, the pacifying statements of Washington and Beijing about their readiness to resume negotiations are positively perceived both by the S&P 500 index and the greenback.
At the same time, the trade conflict between the US and China is tearing the eurozone apart. According to the latest data, business confidence in the region has declined, inflation in the region has slowed, and the economy is losing jobs for the fourth month in a row. The most affected countries are those in Europe where exports account for a high share of GDP. In this regard, France looks much better than Italy, Germany and the currency bloc as a whole.
This fact may contribute to an increase in the number of "hawks" in the ECB Governing Council, as well as implement the next program of quantitative easing for the regulator a much more difficult task than financial markets believe.
Even despite the high chances of a technical recession in Germany, the head of the Bundesbank Jens Weidmann opposes the expansion of monetary stimulus. Bank of the Netherlands President Claes Knot, in turn, believes that the eurozone economy is not so weak to resume buying bonds.
If France takes the same position, then ECB Chairman Mario Draghi will not be easy to promote the idea of additional large-scale stimulus in September, which may disappoint the "bears" on EUR/USD.
The first month of autumn is a seasonally strong month for the euro. In 1975-2018, it went up against the US dollar in 27 cases out of 44. Wake-up calls for the greenback may sound at the very beginning of September when the American labor market report for August is released. Weak data could lead the Fed to believe that the economy is indeed slowing, with the result that the regulator will lower interest rates in September and will signal a further easing of monetary policy. Washington's currency intervention to weaken the dollar can also come true.
Also, if the September negotiations between the United States and China on a trade deal fail, this will lead to a decrease in US stock indices, which will lead to the greenback.
However, this will all be later, but for now, the EUR/USD "bears" revel in fame, preparing to rewrite the August lows and move quotes to 1.089.
