Many experts agree that following the symposium in Jackson Hole, the greenback began to weaken. However, its decline is unlikely to last long and the US dollar will soon win back early losses.
At the beginning of this week, the US currency sank slightly amid increased risk appetite in global markets. Besides, traders remain cautious in anticipation of data on nonfarm payrolls, which creates a contradictory background for the US dollar. New macroeconomic reports can push the greenback both down and up.
According to experts, negative statistics on nonfarm payrolls can spark a sell-off in the greenback. In this case, the euro/dollar pair will most likely approach the level of 1.2000 against the backdrop of a possible phase-out of the quantitative easing program at the end of the year.
Notably, at the symposium in Jackson Hole, US Fed Chair Jerome Powell adopted the hawkish stance but avoided details, preserving room for maneuver. Powell dropped a hint about a possible phase-out of the quantitative easing program this year, and market participants interpreted it as a fact. The regulator's September meeting can make this issue clear. In the meantime, the question remains open. In September, the Fed may start reversing its policy stance only amid upbeat data on nonfarm payrolls in the country, economists are confident.
The current situation does not allow the greenback to stabilize. The ups and downs in the US dollar are very strong, which are sometimes offset by the fairly balanced euro/dollar pair. At the end of last week, Powell's relatively dovish stance dragged the greenback down, provoking an upward correction in the quotes up to 1.1800. The pair's ten-day rally kicked off with a rebound from the lower border of the trend channel, which came across the strong support zone of 1.1650-1.1700. On Tuesday morning, August 31, the euro/dollar pair traded near 1.1829, sometimes climbing higher. At the same time, the euro's momentum was rather strong and the European currency periodically overtook the dollar.
This week, the euro/dollar pair is expected to test the upper border of the trend channel (1.1900). According to analysts, this is facilitated by the support from short-term and medium-term buyers. At the same time, experts do not exclude a breakout of the trend channel. In this case, the nearest target will be the resistance zone of 1.1880-1.1900. However, to start a strong rally, the price needs to break through the 1.1900 area, analysts emphasize.
In the medium term, the euro/dollar pair will most likely continue trading in a downtrend, and its approach to a new high level is expected to be rather difficult. The current situation creates a multidirectional vector of the greenback movement. Experts believe that the dollar's mixed dynamics will be offset by the balance in the euro/dollar pair.
The complicated situation with the inflation rate in the US adds fuel to the fire. According to Powell, the recent surge in inflation in the country is a temporary phenomenon and the inflation rate is expected to return to the target level of 2% in the near future. Against this background, the tightening of the central bank's policy is illegal, the head of the Fed believes. At the same time, Powell focuses on strong economic growth. He once again noted that the regulator would start phasing out its asset-buying program by the end of the year but did not provide a specific date.
In the long term, the Fed's confidence could turn into economic failure as the United States is still on the road to stability. At the same time, the regulator's attitude to fiscal stimulation has changed. Thus, any sign of slowing economic growth may become a reason for other stimulus measures. This does a disservice to the greenback which is struggling to stay afloat. Experts believe that the US economic recovery will face significant difficulties which, in turn, will have a severe adverse impact on the national currency.
