The US dollar noticeably sank after Jerome Powell's testimony at Jackson Hole Symposium held last week. Yet, the US dollar is ready to assert strength the euro and regain its dominant position in the market.
Following the weakling of the US currency, the euro managed to rise. Even the increase in long positions on USD to the highest level over the past year and a half did not prevent EUR from climbing higher. Over the past week, large international funds accumulated greenback purchases by 3%. Experts are sure that if the current trend continues, the greenback will soon recoup its losses.
At the beginning of this week, experts note that bulls are taking the upper hand over the EUR/USD pair. They are trying to push the pair near 1.1838 and 1.1888. The resistance level is 1.1810. The MACD indicator is located in the green zone and continues to rise, giving a signal to buy the euro. On Monday, August 30, the EUR/USD pair was trading near 1.1802, trying to reach new peaks.
Despite the long-term weakening of the greenback, many experts consider its decline temporary. Currency strategists at Capital Economics are confident that by the end of this week, the US dollar will regain its position. According to experts, the expectation of a tightening of the Federal Reserve's monetary policy in response to constantly growing inflation will lead to a strengthening of the US dollar.
Apart from that, market sentiment is quote optimistic after Powell's speech. The Fed Chairman confirmed the probability of tapering the bond-buying program by the end of this year, which was in line with investors' expectations. Although the content of Powell's speech turned out to be negative for the US dollar, experts project the greenback to recover in the medium term.
Following the outcome of the symposium, market participants realized that that the end of QE would not lead to a subsequent hike of the key rate. Some FOMC members were deeply concerned by high inflation, which reached 4.2%. This is the highest level recorded since 1991. However, Powell stated that its jump occurred due to temporary negative factors. So, the situation will normalize in the near future. At the same time, he noted that the key rate will remain near zero until the employment level reaches an appropriate level and inflation settles at the target level of 2%. Powell also said that the labor market was still recovering. As for inflation, it is also unlikely to reach the target level of 2% in the near future. However, the regulator is sure that the situation will improve soon. According to analysts, traders are currently more interested in interest rate hiking rather than the tapering of the bond-buying program.
Thus, the greenback will have to fight for a place under the sun, trying to break out of a negative trend. The US dollar is highly likely to stay flat until the next Fed meeting, which is scheduled for September 21-22. Only then, it may gain momentum.
