Last week, the euro-dollar pair updated its three-month price high at 1.1422 as part of a three-week almost recoilless upward trend. But EUR/USD buyers clearly overestimated their strength - many traders began to take profits after reaching the 14th figure, provoking a downward correction. Therefore, in the second half of last week an impressive price pullback followed, which was exacerbated by a sharp decline in the stock market amid growing concern about the second wave of the US epidemic. Statistical services reported an increase in the number of people infected in several states of the country, and this fact alarmed stock market participants. Stocks of airlines, non-food retailers, and tourism businesses plummeted, putting pressure on key Wall Street indices. Dollar bulls took advantage of panic: demand for the US currency (as a defensive asset) increased significantly, after which the dollar index went up.
But the euro-dollar pair, on the contrary, went below the 13th figure, closing weekly trading at 1.1255. Support for the bears was also provided by the US Treasury Secretary, who announced a new stimulus package. In other words, last Friday was clearly in favor of the US currency, so the downward correction for the pair looked absolutely logical. I repeat - for the time being we are only talking about correction, since sellers need to not only enter the 11th figure to break the trend, but also go below the 1.1150 mark (the middle line of the Bollinger Bands indicator on the daily chart). Meanwhile, Friday's downward momentum over the weekend has faded, and the current fundamental background does not yet allow dollar bulls to dominate the pair.
First, the overall growth rate of infected people remains at the same level in the United States, an outbreak was recorded only in some states during the weekend (although large ones - in California and Texas). Secondly, Stephen Mnuchin's words about additional stimulation lost their "charm" - certain actions should have followed (the head of the Ministry of Finance promised to introduce a legislative initiative), but the White House is still silent.
Thirdly, the dollar is waiting for tomorrow's speech by the head of the Federal Reserve in Congress with a six-month report. The text of the report itself was published on Friday. In it, the Fed expresses concern about the state of small business in the United States, focusing on the possible bankruptcy of a large number of small enterprises. The regulator makes an obvious conclusion that this fact will negatively affect the pace of recovery in the US economy.
Given that the report itself has already been made public, the focus of traders will be riveted to Fed Chief Jerome Powell's additional comments. Earlier, he repeatedly stated the need for additional assistance from the state and, most likely, will raise this topic again tomorrow. Such rhetoric will support the US currency, especially if the Trump administration still presents the promised bill tomorrow.
Powell's dovish remarks are likely to be ignored by the market. The Fed chief is likely to repeat the main points that he had already voiced following the June meeting - that the central bank will maintain its current interest rate "at least until the end of 2023", and that the regulator will increase treasury purchases in the near future and mortgage-backed securities to support lending to households and enterprises. In this case, Powell either does not touch on the topic of negative bets, or refutes the likelihood of such a move. Thus, he will emphasize that the issue of raising the rate is only on the agenda, and that the estimated timeframe for this step is the subject of discussion. All this suggests that Powell's speech for tomorrow will most likely support the greenback.
In turn, the European currency is also waiting at the moment. An online summit of EU leaders will be held on June 19 to discuss the anti-crisis 750-billion plan of the European Commission. This is an important stage in the process of general coordination of this plan, therefore, the euro is unlikely to show initiative against the dollar until the outcome of the meeting.
Thus, traders today are trading in anticipation of the key events of the week. And if the euro will "languish in anticipation" until Friday, then the dollar bulls will determine the greenback movement vector tomorrow. If Powell's rhetoric supports the dollar, the pair will resume the correction, in which case the price can test the support level of 1.1150 (the middle line of the Bollinger Bands indicator on the daily chart). The pair can leave the area below this mark only if the dollar receives additional support from the White House (that is, if the Trump administration presents the above-mentioned bill on financial assistance). If EUR/USD stands above the middle of the 11th figure by the end of tomorrow, then it will be possible to consider long positions in the pair, since from a technical point of view, the pair will retain the potential for its further growth in the medium term - at least to that achieved last week three-month high at 1.1422.
