The EUR/USD pair broke through the resistance level of 1.1850 and set its next ambitious target in the form of a level of 1.1900. The breakdown of this level will serve as a signal for a global reversal, while at the moment, the price growth should be considered as a large-scale correction caused by Jerome Powell's indecision, rising European inflation, and hawkish comments from some ECB representatives. The movement swung in the direction of the Euro currency, but there are many key events ahead that can noticeably change the fundamental picture for the EUR/USD pair. The first event of this series is already scheduled for today – US Nonfarm data will reflect the pace of recovery of the labor market in the United States.
The main currency pair has been growing for two consecutive weeks. If we take a look at the weekly chart, a wave-like price movement can be observed. On September-November last year, the pair traded in the range of 1.1600-1.1870, after which there was an upward impulse, which brought it within the range of 1.2000-1.2300. The pair traded in this area until March of this year when it did not decline to the bottom of 1.17 on the wave of US inflation. It can be recalled that the US inflation did not worry most of the Fed members. They said that the CPI growth was due to temporary factors and the effect of the low base of the last year. Reacting to this rhetoric, the pair approached annual highs at the beginning of summer again, surging to the borders of the 23rd figure. However, the EUR/USD buyers did not stay in this price area either: the strengthening of the "hawkish" rhetoric on the Fed's part and the expectation of the collapse of QE allowed the US dollar to fall, after which the pair updated its annual low at 1.1664 in early August. It was the low point of the next downward wave, followed by the upward one.
It can be seen that the current price dynamics "fit" into the general algorithm of price movement. The pair has been trading in a wide price range of 1.16-1.23 for a year and is currently at the stage of recovery after reaching the lower point of the global range. The only question now is whether the price will reach the upper limit of this range or the next reversal will happen much earlier.
The answer to this question will consist of several puzzles. The August Nonfarm, as well as the results of the September meeting of the ECB, will determine the vector of further movement of the pair.
Let's start with today's release. It can be recalled that the July Nonfarm exceeded all the experts' expectations. The release components came out in the "green zone", and even the salary growth rates turned out to be better than expected, even despite the quite optimistic expectations. The growth in the level of average wages (+0.4% mom and +4.0% yoy) complemented the impressive result in relation to the increase in the number of people employed in the non-agricultural sector (943 thousand). The unemployment rate did not disappoint either, which reached 5.4% contrary to forecasts of growth to 5.7%. The main release indicator has been consistently growing over the past four months: in April, 278 thousand jobs were created, in May - 580 thousand, in June - 938 thousand (the June figure was revised upward from the previous value of 850 thousand), and lastly, in July - 943 thousand.
According to preliminary forecasts, the August figures should also not disappoint. The unemployment rate in the States should decline to 5.2%, and the growth rate of the number of Nonfarm employees should increase by 750 thousand. On the one hand, Nonfarm are "driven" into a trap of inflated expectations. On the other hand, key data on the labor market have been released in the "green zone" for several months in a row, exceeding even the most daring forecasts of experts. If this unusual tradition is not broken today, the US dollar will receive significant support throughout the market, including in a pair with the euro.
In turn, the Euro currency is also waiting for an important event, which will take place next week – September 9th. It is on this day that the next ECB meeting will be held, which will determine the fate of the euro at least in the medium term.
At the end of August, the Reuters news agency interviewed more than 30 experts on the prospects of the ECB's monetary policy. Most of the analysts surveyed expressed confidence that the decision on the gradual curtailment of the PEPP will be made by the European regulator no earlier than December of this year. At the same time, many of them also note the existing risks regarding the implementation of this forecast. According to them, the number of new cases of coronavirus in the EU countries is still growing, and uncertainty about the development of the situation with COVID-19 remains (this is especially true for the autumn-winter period). If the epidemiological situation worsens, the European Central Bank is likely to continue buying bonds at the current pace until the end of the year to prevent an undesirable increase in yields. Consequently, a decision on curtailing incentives may be made in February or even at one of the spring meetings.
Such assumptions are discordant with the latest comments from several ECB officials, who this week called for considering the curtailment of the emergency asset purchase program. But, firstly, the market focused only on the statements of the ECB's hawks (the head of the Bank of Austria and the head of the Central Bank of the Netherlands), while many of their colleagues are less determined. In addition, an "enhanced" APP program will most likely replace the PEPP.
All this suggests that the current upward cycle of EUR/USD may end in the first half of September, without reaching the borders of the 1.20 level. The first test for traders of the pair is already today. In this case, it is most expedient to take a wait-and-see position before the release of Nonfarm, since the published figures can significantly "redraw" the fundamental picture for the pair, strengthening or weakening the US currency.
