The dollar is apathetic, the situation in the US is at least strange. The focus is on inflation data, which, like the labor market report, may be inconsistent with the overall picture and analysts' forecasts. In this regard, it is difficult to predict the directional movement of the dollar, and yet we will try.
Hot employment data not only does not indicate the presence of a recession, but also completely rejects such a hypothesis. The recession is characterized by falling indicators for GDP and the labor market, and here is a dilemma: the economy has collapsed, and the labor market has grown as much as possible.
Market players were forced to split into two camps. Some are looking for evidence that the employment data is erroneous and the recession has begun in the country. In the near future, statistics on the labor market may change dramatically. Others believe in the economic strength of the United States and consider the recent decline in GDP to be a temporary and short-term phenomenon.
Inflation will be published on Wednesday, which may help traders and investors sort out the confusing situation and allow them to predict the Federal Reserve's further actions. Members of the central bank, by the way, last week talked too zealously about the need for further tightening, hinting that Wall Street may be mistaken, laying down for an early easing of policy. It seems that the Fed does not need a growing market right now, nevertheless, it was not possible to reverse the upward trend. Suddenly, inflation will help... Judging by the forecasts, it is unlikely.
The consensus assumes a slowdown in the annual growth of consumer prices in the country to 8.7% after a record 9.1% since 1981 in June. This indicator will determine what pace the Fed will go further. According to CME Group, 66.5% of analysts expect a rate increase of 0.75 bps in September. In the case of signals for the passage of the peak of price growth, the degree of policy tightening may decrease, which will negatively affect the dollar's position.
Dollar bears are challenging the level of 106.00 on the index. Another movement within the 105.00 mark seems quite likely in the very near future. If the pressure on the US currency increases, a deeper pullback is possible.
Nothing will threaten the short-term trend as long as the index is trading above 104.40.
Since expectations on the Fed's policy will be the main driver this week, the inflation data will be viewed backwards and forwards.
If the CPI does slow down to 8.7%, this may not affect the expectations for the rate. The main focus is on core inflation (excluding energy and food prices), which is projected to rise from 5.9% to 6.1%. If so, this will push the central bank to another third increase in the interest rate by 75 bps in September.
Although the euro is now growing within the second figure solely due to the apathetic state of the dollar, its future still looks pessimistic. The statistics for the eurozone are weak.
Retail, published last week, fell by 3.7% year-on-year, and this is one of the worst results since the 2008 crisis.
The data from Sentix on the level of investor confidence were not impressive either. The August value, although somewhat recovered, remained at record lows.
At the end of last week, the EU approved a decree on reducing gas consumption by 15% next winter. Starting from this month and until the end of March next year, in case of problems with the supply of natural gas from Russia, an economic model is introduced. It will also affect households, electricity producers and industry. The European population has already been made to understand that it is worth preparing for a serious increase in electricity tariffs. Of course, this will hit incomes and consumer activity hard.
In such a situation, the euro has no chance of any significant recovery.
The EUR/USD pair, as noted in Scotiabank, will remain within the recent range for the time being.
"EUR/USD has been trading in a sideways range since mid-July, and despite the intraday growth of the euro, there are no signs that this range will be broken in the near future," the economists comment.
Short-term support is at 1.0135. Resistance is at 1.0295.
It is hard to believe about a stronger recovery, for example, above 1.0300, but no one has canceled parity yet. Such a scenario is quite logical in the current economically unfavorable and deteriorating situation.
Rabobank analysts predict a fall in the euro against the dollar in the coming weeks below the level of 1.0100. This opinion is based, among other things, on the recent consolidation of the quote between 1.0100 and 1.0300, which fell below parity in mid-July. There should be either a further recovery or another wave of decline. There are no reasons for recovery.
The idea of a new fall in EUR/USD should be supplemented with another batch of fresh negative news on the euro.
However, there are also analysts who oppose such a strategy. They do not believe that the dollar will continue to enjoy good support until 2023. Now is the time when the multi-month rally is coming to an end and we need to prepare for the opposite trend.
