Stock rally ended, as shown by the sharp drop in demand for shares, rise in dollar and decrease in prices of commodity assets. It rose earlier because consumer inflation in the US and the euro area declined, and The People's Bank of China decided to reduce the deposit rate in an attempt to stimulate domestic demand. Another reason was the expectation that the Fed would pause raising rates in September, and then increase them by 0.75% until the end of this year.
But this scenario is not final as the economic symposium in Jackson Hole this Friday will certainly affect market sentiment. In particular, Fed Chairman Jerome Powell's speech is an important point for investors in deciding whether to continue to sell or buy. If he talks about the need to continue the aggressive increase in rates, a new wave of sell-offs will occur in the stock markets, while demand for dollar will rise. This means that EUR/USD will fall, and may possibly repeat what happened back in December 2002, when the pair was just above 99 US cents per euro and has a local low of just above 82 US cents. The falling out of the European Union, as well as geopolitical tensions, may even exacerbate the negative situation.
In short, Powell's tough, hawkish message at the symposium will give a new impetus to dollar's growth. The best response to this is to sell the pair.
Forecasts for today:
EUR/USD
The pair broke through 0.9920 and has every chance of falling to 0.9855 if the economic and political crisis in Europe worsens.
NZD/USD
The pair is trading above 0.6150. However, increased selling pressure will push the quote to 0.6055.
