"The tops can't, the bottom doesn't want to": this is how you can characterize the current situation for the pair. EUR/USD bulls are trying to settle in the boundaries of the 6th figure, while bears cannot keep the price below 1.0500, not to mention return to annual price lows. As a result, the pair is already in the range of 1.0450-1.0570 for the second day, reflexively responding to the current news flow. The euro cannot independently turn the situation for the pair, while the dollar retains its appeal against the background of the Federal Reserve's hawkish intentions. The downward trend is still valid, however, for its further development, more powerful information impulses are needed - the hawkish comments of the Fed Representatives help the EUR/USD bears stay in the region of 4-5 figures, but do not allow to go even lower than the 1.0340 mark (overcoming it will open the path to parity). In other words, traders parted in the corners of the ring and were in no hurry to go into battle again. The 100-point range can hardly be called flat, but the de facto market participants are within the framework of this price range.
The corrective successes of EUR/USD bulls are largely due to the position of the European Central Bank, whose representatives have finally begun to tighten their rhetoric. Inflation in the eurozone reached its record levels a few months ago, but the ECB's reaction was inert. ECB President Christine Lagarde continued to insist that the consumer price index would reach its peak in the second half of the year, while the prospects for the growth of core inflation seemed "vague" to her. Then she said that the issue of raising rates will be considered after the completion of the APP program in the third quarter. However, at the same time, she left a fairly flexible time gap between the moment of curtailing QE and the first round of rate increases (according to her, "weeks or months" may pass between these events). Against the background of such obviously excessive caution and indecision, the euro was under the strongest pressure.
But recently, the rhetoric of a number of ECB representatives has noticeably tightened. Including Lagarde, who allowed the option of raising rates following the results of the July meeting. However, she did not specify by what amount the central bank is ready to increase rates. For example, this week the chairman of the central bank of the Netherlands, Klaas Knot, did not rule out the option of a 50-point increase. This idea (which, by the way, was voiced in a hypothetical way) cheered up the EUR/USD bulls, after which they tested the resistance level of 1.0570. Then the upward fuse dried up and the bears seized the initiative.
A similar situation is observed today. Against the background of the temporary weakness of dollar bulls, who are "resting on their laurels" and are in no hurry to develop an offensive in the main currency pairs, the euro again allowed itself to strike a large-scale counterattack, with the clear intention of approaching the borders of the 6th figure. The reason for such a price movement was the minutes of the ECB's April meeting published today. The text of the document says that ECB members "expressed extreme concern" about the growth of inflation. In this regard, they called for "further normalization of monetary policy."
EUR/USD bulls have seized on this phrase – against the background of the general weakening of the greenback, the price has increased by several dozen points and is currently testing the resistance level of 1.0570 again (the average line of the Bollinger Bands on the daily chart).
But in my opinion, today's growth is due to the strengthening of the dollar rather than increased demand for the euro. The fact is that the ECB minutes, on the one hand, reflected the readiness to complete the bond purchase program in the third quarter (which was already known before), however, on the other hand, it did not disclose other intentions of the central bank, including with regard to interest rates. Therefore, the document that was published today can be called hawkish with a big stretch.
The US dollar index, in turn, is moving away from the reached highs due to today's macroeconomic reports. They are very secondary, but they came out in the red zone as a selection. Most of all, for example, the Fed-Philadelphia manufacturing index, which is based on a survey of manufacturing companies in this region, disappointed. Instead of the projected growth to 16 points, it collapsed to 2.6 (capital expenditures decreased, employment fell significantly). The weekly increase in the number of initial applications for unemployment benefits was also disappointing. This week, a 218,000 increase was recorded. This is the strongest growth rate since January of this year. The indicator of home sales in the secondary market of the United States also came out in the red zone– the volume of transactions is declining for the third consecutive month.
Thus, thanks to the relatively hawkish ECB minutes, as well as thanks to weak macroeconomic reports from the United States, EUR/USD bulls were able to develop another wave of corrective pullback. At the moment, traders are again testing the upper half of the three-day price range of 1.0450-1.0570. It is likely that the bulls will be able to temporarily overcome this target. But if the upward momentum begins to fade around the 1,0600 mark, short positions will regain their relevance. The downward goals in this case are predetermined – these are the 1.0550 and 1.0500 marks.
