The EUR/USD pair has significantly increased in recent days, reaching a previously local bottom against the backdrop of lower expectations that the ECB will decide to curtail the stimulus program for the economy of the eurozone in 2018. The pressure on the pair was also worsened by the strengthening of the US dollar's position due to the higher expectations of a rate increase at the December meeting of the Fed.
The recovery of the euro in recent days is associated with two factors. First is the strengthening of the dollar, which was supported by the firm position of the Fed, as well as the intention of the CEO J. Yellen to continue the movement towards the normalization of monetary policy which is accompanied by an increase in the level of short-term interest rates. The second factor is associated with a drop in expectations that the ECB will decide to curtail its stimulus program amid the uncertain political situation in Germany, following the elections in the Bundestag and the lack of a majority for A. Merkel in it, as well as the boiling political tensions in Catalonia.
For the past four days the pair began to recover. This can be attributed to the closure of a significant amount of long US dollar positions before the publication of important data on consumer inflation, which will be announced this Friday. Investors are clearly worried about a repeat of what happened this summer. Last time, the consumer price index was predicted to rise but data showed the contrary and it fell, triggering stable market expectations that the Fed will not dare raise the cost of borrowing this year for the third time. However, the American regulator turned out to be a staunch tin soldier. They did not succumb to the pressure of the market, making it clear that they were not going to change plans for the interest rate growth.
Therefore, we can say that the fate of the dollar is in the "hands" of inflation. If the data will be at least in line with forecasts, and inflation is expected to increase, then it will definitely support the dollar because it will convince the Fed of the correctness of its actions. Against this background, we will see a reversal of the entire foreign exchange market in the direction of the appreciation of the dollar. Naturally, in this situation, the EUR/USD pair will not stand. This will not only test the recent lows, but will fall even lower.
Forecast of the day:
The EURUSD pair remains in the range of 1.1675-1.1825 on the wave of expectations of new data on consumer inflation in the US for September. The euro is also supported locally by positive data on Germany's trade balance, which was published yesterday. If the upper limit of the range is not overcome, we should expect the price to fall to 1.1675.
The GBPUSD pair has been adjusted enough to work out the local oversold factor. We continue to expect its fall to 1.2985-90.