The EUR/USD pair is showing passivity at the beginning of the last week of September, trading in a narrow price range. The bears of this instrument failed to consolidate in the area of the level of 1.16, but the general bearish mood remained.
At the weekend, the Bundestag elections took place, which was held without the participation of Angela Merkel for the first time in the last 16 years. The preliminary vote count indicates the defeat of her bloc: the winner was the Social Democratic Party of Germany, which got a chance to form a new government. However, not everything is so clear here. Despite the nominal victory, the Social Democrats will not be able to form a cabinet of ministers on their own – they will have to negotiate a coalition either with the Green Party, or representatives of Free Democracy or with the CDU/CSU. In other words, a protracted "coalition war" awaits us. According to political observers, the current election results hypothetically allow us to preserve/renew the government coalition of the last eight years, however, with a change of dominant roles: the Social Democrats will take the lead, while the conservatives will act as the junior partner. However, such a scenario is currently excluded by the leaders of these political forces. As you know, any political uncertainty puts pressure on the national currency. So far, the euro has shown minimal reaction, as there is general confidence that the winners of the elections will form a government as soon as possible. But if this process is delayed (this is very likely), the pressure on the euro currency may increase.
In general, the current week is very significant for the euro. ECB's President Christine Lagarde will speak twice (on Tuesday and Wednesday) at various events. She can tell in more detail about the fate of the PEPP program, the pace of which is planned to be reduced approximately in November. In addition, quite important macroeconomic reports will come from Europe. For example, an indicator of consumer confidence will be published on Wednesday, based on a survey of households about the level of confidence in the current state of the economy. For the last two years, it has been in the negative area, but it has gradually been heading to zero in recent months. In September, it should reach the level of -4 points, reflecting the general pessimism of Europeans. Meanwhile, important macro reports from Germany will arrive on Thursday. We will find out the data on the growth of German inflation. According to preliminary forecasts, the overall consumer price index in September will grow by 0.1% on a monthly basis (after a zero result in August), and by 4.2% on an annual basis (a long-term record). The harmonized CPI should show similar dynamics – growth is expected both in monthly terms (0.2%) and in annual terms (3.8%). After that, data on the growth of pan-European inflation will be published. Since February of this year, the EU's inflation has been showing stable and consistent growth. And it seems that the September figures will reflect the continuation of this trend. Therefore, the general consumer price index should reach 3.3% (after rising to the 3% mark in August), and the core index should reach 1.9%. Such a result will certainly support the euro, but its growth may be limited. The fact is that the new strategy of the European Central Bank allows for a temporary excess of the target inflation rate, allowing the regulator to ignore such an inflationary surge.
As for the US dollar, the week is also full of important fundamental events. First, the whole representatives of the Fed are expected to speak. Jerome Powell, Michelle Bowman, Raphael Bostic, Patrick Harker, Charles Evans, and John Williams will voice their opinions during the five-day trade. Second, very significant macroeconomic statistics will be published in the coming days. For example, data on the volume of orders for durable goods will be published at the start of today's US session. Experts said that the indicator should demonstrate positive dynamics. On Tuesday, we will find out the value of the indicator of American consumer confidence. It is also expected to grow (up to 115 points) after a three-month decline. The Fed-Richmond manufacturing index will be published on the same day. On Thursday, we will learn the final estimate of US GDP growth in the second quarter (the indicator is expected to be revised upwards - to 6.7% from the previous value of 6.6%). Also on this day, one must pay attention to the increase in the number of initial applications for unemployment benefits. According to experts, this indicator will reach the level of 320 thousand – that is, it will almost reach pre-crisis values. And finally, on Friday, all the attention of traders will be focused on the main index of personal consumption expenditures (Core PCE Price Index), which measures the core level of spending and indirectly affects the dynamics of inflation in the United States. It is believed that this indicator is monitored by the members of the regulator more carefully. Based on forecasts, the index will show a strong result – it will rise to 0.4% in monthly terms, and surge to 3.7% (a multi-year high) in annual terms. This indicator may have a significant impact on the position of the US dollar, especially after the latest inflation release, which reflected a slowdown in the growth of the consumer price index.
We believe that corrective upward pullbacks in the medium term can still be seen as a reason to open short positions. From a technical point of view, the pair on the daily chart is located between the middle and lower lines of the Bollinger Bands indicator, as well as under all the lines of the Ichimoku indicator, which shows a bearish "Parade Line" signal. The first target is the lower line of the Bollinger Bands (1.1680). The next support levels are 1.1664 (the annual low) and 1.1580 (the lower line of the Bollinger Bands, which coincides with the lower border of the Kumo cloud on the weekly chart).
