The US currency still can not determine the vector of its movement. Paired with the euro, the dollar is showing multidirectional intraday movement, although EUR/USD buyers managed to gain a foothold within the eighth figure in the first two days of the trading week. Now the bulls have a more difficult task – they need to finally stake out their positions above the middle line of the Bollinger Bands on the daily chart (that is, above the 1.0850 mark), then to begin the assault on the ninth figure.
Weak data on rising US inflation today was compounded by weak producer price index values. But Federal Reserve Chairman Jerome Powell unexpectedly came to the aid of dollar bulls, who spoke (via video conference) to students at the University of Pittsburgh. Buyers were out of luck again: the Fed chief put an end to the upward momentum, returning the pair to the middle of the eighth figure. And although Powell did not say anything sensational, his rhetoric provided support for the US currency. As a result, the situation again hung in the air: bulls still need to go above 1.0880, bears – in the seventh figure. The eighth figure looks like a kind of buffer, from which traders can not get out for the second week.
So, let’s start with US statistics. US macroeconomic reports are frankly disappointing, even against the background of very pessimistic and realistic forecasts. In particular, all April inflation indicators were in the red zone, reflecting a decrease in consumer activity. For example, the general consumer price index in monthly terms, when forecasting a decline to -0.7%, fell to -0.8%. In annual terms, experts expected to see the general CPI at around 0.4%, while the figure came out at around 0.3%. Core inflation, excluding food and energy prices, also disappointed. In monthly terms, the core index dropped to -0.4%, in annual terms – to 1.4%.
The Producer Price Index added a gloomy picture today: April figures were much worse than expected. Judge for yourself: according to the consensus forecast, this indicator (in monthly terms) should have decreased to -0.5% (i.e., a two-month low). Instead, it collapsed to -1.3% (multi-year low). Similar dynamics can be seen on an annualized basis – with a forecast decline to -0.2%, the indicator crashed to -1.2%. It should be recalled that the number of people employed in the US in April fell by 20,500,000, and since the beginning of the epidemic, that is, since the beginning of March, more than 33 million new unemployed have been registered in the United States. Unemployment jumped to almost 15% (although according to other estimates, this figure rose to 20%, since the temporarily absent were not classified as unemployed).
After the release of such disappointing data, rumors spread around the market that the Fed might consider options for further easing monetary policy. There were even suggestions that the rate would be reduced to the negative area. Representatives of the Fed began to discuss this topic, however, none of the speakers (Bullard, Kashkari, Barkin, Quarles) spoke in favor of such a scenario. But the fact of such discussions alerted traders, after which the dollar was under background pressure. In anticipation of today’s Powell speech, this pressure has intensified, especially after the release of data on the growth of US inflation. If Powell today at least hypothetically allowed the option of lowering rates below zero, the dollar would have plunged the entire spectrum of the market. But the head of the Federal Reserve willy-nilly sided with the dollar bulls, rejecting this idea.
Although in itself the speech of the Fed chief was extremely pessimistic. He said that even after the economy opens, the United States may face a “long period” of weak growth and stagnation of income. And the longer the quarantine period (not to mention the possible second wave of the epidemic), the deeper the crisis will be (the risks of mass bankruptcies will increase, consumer activity will significantly decrease, etc.). At the same time, Powell almost openly asked Congress to approve the 3 trillion package of additional economic assistance.
It is worth noting that after the speech of the Fed chief, the dollar began to strengthen not only due to a decrease in the probability of introducing negative rates. According to some experts, today’s call by Powell will accelerate the process of agreeing on the above bill. The economic assistance package proposed by the Democrats includes $1 trillion for the needs of states and cities, additional payments for working in dangerous conditions for life support workers, and a new round of payments to all US residents.
But the whole problem is precisely that the bill was proposed by the Democrats, who have a majority of votes only in the Lower House of Parliament. The Republicans, who in turn control the Senate, are not eager to play along with their opponents, especially on the eve of the presidential election. Biden is now ahead of Trump in many states, and if Democrats’ three-trillion-dollar legislative initiative comes to fruition, this rating gap can only increase. Therefore, it is not surprising that the Republicans took the idea of the Democratic Party “with hostility”, although on the public plane they can not too zealously protest against additional assistance. At present, the bill, which is 1,800 pages long, has been sent for consideration by the Senate. Mitchell McConnell, the Republican leader in the Upper House, has already called the Democratic proposal a hodgepodge, adding that the voiced proposals “are irrelevant.”
Of course, today’s appeal by the Fed chief some Republicans to vote “for” the initiative of the Democrats. But, in my opinion, Powell will not be able to radically affect the situation, which is not so much economic as political. Therefore, with a high degree of probability, the Senate will return the bill for revision, and the dollar, in turn, will remain under background pressure.
Despite the increased volatility, the technical side of the issue has not changed much since yesterday. For further growth, the bulls of the pair, firstly, it is necessary to finally gain a foothold above the 1.0850 mark (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart), and secondly, to overcome the 1.0890 mark (Tenkan- line sen on the same timeframe). In this case, it will be possible to consider long positions with the first northern target at 1.0950 (the upper line of the Bollinger Bands) and the second target of 1.1010 (the lower border of the Kumo cloud). If EUR/USD traders in the near future can not settle above 1.0850, then they will again fall to the bottom of the eighth figure, with further testing of the seventh price level.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.