The euro-dollar pair is showing a corrective growth today—the price has risen to 1.0100. Note that this price surge is not related to yesterday's ECB meeting and is not at all due to the strengthening of the European currency. Buyers of EUR/USD seized the initiative only thanks to the greenback, which sank throughout the market on Friday. The US dollar index declined sharply, falling from a multi-year high of 110.77 (reached on Wednesday) to the current value of 108.40. Accordingly, the situation has changed in all dollar pairs of the major group.
Looking ahead, it must be emphasized that, despite the fairly confident growth of EUR/USD, it is still risky to enter into purchases. Such impulsive price movements, as a rule, are fleeting. Also, we must not forget that today is the last trading day: no one canceled the Friday factor. Therefore, you should not rush with longs—the price growth looks speculative and shaky.
Notably, the dollar sank sharply across the market for no apparent reason. Apparently, we are witnessing a banal corrective pullback after reaching a 20-year high. The US dollar index has shown positive dynamics over the past four weeks, reaching its multi-year peak (110.77) on September 7. The correction is taking place against the backdrop of rising risk sentiment in the markets. Most Asian stock indices were in the green on Friday, following the trajectory of the key Wall Street indices, which also closed positive yesterday. During the European session on Friday, futures for US stock indices are also showing positive dynamics, signaling a positive opening of Wall Street. In turn, the greenback and treasury yields retreated from their highs.
The general interest in risk arose amid reports that China will increase spending in the third quarter, responding to the slowdown in the country's economic growth. In particular, Beijing recently approved a new quota of bonds worth 200 billion yuan (which corresponds to almost 30 billion dollars) to support the country's energy companies, as well as 10 billion yuan for agriculture.
The corrective pullback of EUR/USD may be temporary and short-term. There are no good reasons for a large-scale correction, not to mention a trend reversal. Therefore, it is not worth hurrying with longs even in the context of close price distances.
The optimism associated with China looks, to put it mildly, exaggerated. This year, its economy is showing the worst performance in the last three decades. According to the National Bureau of Statistics, in the second quarter of this year, the country's GDP increased by only 0.4% compared to the same period in 2021. According to some analysts, the contraction of the Chinese economy will continue in the third quarter. This would mean that China could face a technical recession.
Therefore, it is still very, very early to write off the safe dollar, which acts as a protective instrument. And in general, the US currency has a large margin of safety in the context of confrontation with other currencies of the major group. First of all, due to the position of the Fed, whose representatives continue to support the aggressive pace of tightening monetary policy. Just yesterday, Fed Chairman Jerome Powell voiced his position again. He remained hawkish, saying the Fed intends to act "strongly and directly."
The reaction to this speech was not long in coming: today, markets estimate the probability of a 75 basis point rate hike in September at 86%. On the one hand, all subsequent hawkish comments by Fed members (before the onset of the "silence regime") will be ignored by traders since the 75-point scenario is already a priori the basic one. On the other hand, the dollar will be in high demand in the near future due to the trading principle "buy on rumors."
The euro, in turn, is still a vulnerable currency, especially against the background of the meeting of EU energy ministers. According to a number of experts, if the marginal prices for oil and gas are approved, Russia may suspend the remaining oil and gas supplies to the European Union. At least, the risks of implementing such a scenario will increase significantly. For this reason, EUR/USD buyers behave more modestly today than greenback opponents in other dollar pairs. It is clear that the aggravation of the energy crisis will further increase the risk of a recession in Europe.
Thus, today's correction should be treated no more than a correction. In this case, you can't do without tautology. The current situation can be used as a springboard: from the current heights, it is advisable to open short positions with targets such as 1.0000, 0.9950, 0.9900.
