The beginning of the new month is mixed – will the indecisiveness on the dollar dominate the next weeks? A continuation of the downward trend of the dollar and the observed return of the risk rally is more likely for some time than a quick reversal of these trends.
The euro is strengthening, the EUR / USD gains will be mainly based on the weak dollar
Tapering in the FED release during the meeting scheduled for September 22 is unlikely, as the macro data to be released in the coming days are unlikely to be particularly good, although the market will quickly explain it to Delta. The current wave of infections in the US, however, may have already passed its peak, and the failure to return to the restrictions may make its impact on the economy quite limited. Thus, the market will carefully analyze the FED’s statement after September 22, in order to be able to assess the chances of a reduction in asset purchases on November 3. The currencies of those countries where central banks will remain hawkish will remain in the center of attention – in the G-10 group these are the Norwegian krone and the New Zealand dollar. A surprise may come from the USDJPY, if September confirms the signals of a change in the trend in the US debt that have been observed for several weeks – a return to increases in yields. Nevertheless, it may be the domain of the second half of the month. The breakout above 1.1800-1.1810, where the trend line is going down, was not entirely successful. The euro was supported by higher estimates of consumer inflation in the euro zone (3.0% y / y in August), which fueled speculation around a potential discussion on the PEPP asset purchase program run by the European Central Bank. Ultimately, however, the market assessed that there are relatively few “hawkish” voices calling for its possible limitation to be able to build a longer strategy towards the single currency on this basis.
EURUSD daily chart The topic will probably come back, but at the moment the EURUSD gains will be mainly based on the weak dollar. And yesterday it rebounded a bit, which could have more to do with flows at the end of the month than the US data release (Chicago PMI, Conference Board consumer confidence). What’s next? The macro data from the euro zone are not encouraging today to buy the euro (worse retail sales in Germany and PMI), and the US readings may create uncertainty – we have ADP and ISM for industry, and we are starting to line up for Friday’s US Labor Department readings. Theoretically, US figures may be weaker, which will be explained by concerns about the Delta variant. Thus, they are unlikely to provide any arguments for the September tapering (the FED meeting is scheduled for September 22). It’s just that the market seems to know it already. Thus, weaker macro data may slightly undermine the sentiment on Wall Street, which may also be damaged by rising US bond yields. To sum up, if the dollar is stronger now, it will be due to weaker sentiment in the world.
On the other hand, technical analysis suggests that support may be around 1.1775 if it fell below 1.18. In the case of increases, the market will go to yesterday’s peak at 1.1844, and in case of its breakthrough – towards 1.19.
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