FX.co ★ EUR/USD: the dollar froze in anticipation, the euro falls on the dovish intentions of the ECB

Today, the euro-dollar pair tested the 11th figure, showing a downward attitude. Traders are still confident that the Fed will take a wait-and-see position at its July meeting against the background of fairly strong June Nonfarms. Two weeks ago, the probability of a rate reduction was almost at 100%, so such a sharp reversal provided strong support to the dollar. But given the upcoming events in the US Congress, EUR/USD bears behave very carefully and without much pressure. Price fluctuations are wavy: after entering the 11th figure, bulls of the pair seized the initiative and returned the pair to the level of today's opening. However, even with the relative indecision of sellers, the pair still remains in the price range of 1.1180-1.12220, waiting for the key events of this week.

It is worth noting that the pair is falling not only due to the continuing demand for the dollar. The single currency is under the yoke of its problems, which, in turn, reinforces the downward dynamics of EUR/USD. First of all, we are talking about the ECB's readiness to soften the parameters of monetary policy. If earlier such intentions were voiced in passing, now a rare speech by representatives of the ECB is not without corresponding notes. For example, a member of the ECB's board Benoit Coeure, who four years ago was one of the initiators of the launch of a stimulating program, recently said that the regulator may well resume QE in the near future, if the situation in the eurozone economy demands it.

In turn, ECB chief economist Philip Lane negatively assessed the current situation today. According to him, inflation is still below the target level, while downside risks "are growing every day." He again repeated the thesis that the European regulator needs to pursue an accommodation policy in order to return inflation indicators to the targets, and for this the ECB "has enough tools". The chief economist at the central bank also noted the effectiveness of negative rates, stating that it is the most accurate way to bring inflation to the targets. This position only raised the pressure on the euro, especially in the light of IMF head Christine Lagarde's nomination as the head of the ECB. According to some analysts, Lagarde will be guided in her actions through Lane's advice/recommendations.

If these forecasts are justified, the dovish attitude of the European regulator will increase significantly, and this fact will put background pressure on the single currency. By the way, today the Council for Economic and Financial Affairs (ECOFIN), which includes the Ministers of Economy and Finance of all EU member states, officially approved the candidacy of Lagarde for the post of head of the ECB. Although the final decision on this issue will be made only in October at the EU summit (and before that Lagarde will be discussed in the Council of the EU and the European Parliament), no one doubts her appointment to this post.

Considering recent trends, many currency strategists (for example, market giants such as Goldman Sachs and Morgan Stanley) have increased the likelihood of easing monetary policy parameters already in early autumn. In their opinion, the ECB will refrain from such actions in July, but at the same time it will prepare the markets for the appropriate steps. But at the September meeting, the regulator will restart the anti-crisis mechanism, returning to bond redemption. Analysts of the largest banks in France, Denmark and the Netherlands hold a similar opinion.

In technical terms, the euro-dollar pair is currently testing a support level of 1.1200, which corresponds to the lower boundary of the Kumo cloud on the daily chart. If tomorrow, Powell supports the US currency, the bears will easily deal with this support and will go to the next level - 1.1150 (the bottom line of the Bollinger Bands indicator on the same timeframe). The further target of the sellers will be in the area of the 10th figure (1.1090 corresponds to the lower Bollinger Bands line on the weekly chart). It is likely that the pair will impulsively move down to the bottom of the 11th figure, but further price dynamics will be questionable due to Donald Trump's possible reaction. According to some analysts, the US president may resort to currency intervention if the Fed refuses to reduce the interest rate in July. In this case, the downward trend in the EUR/USD "will be discarded", even despite the dovish intentions of the ECB.

Thus, the euro-dollar pair is currently under pressure from various fundamental factors. The Fed chief can increase this pressure if the tone of his rhetoric turns out to be more hawkish in relation to general market expectations. In this case, short positions in the EUR/USD pair will be fully justified. However, when the price approaches the bottom of the 11th figure and (especially) the 10th level, caution should be exercised in view of the possible reaction of the White House (Trump). In any case, tomorrow is expected to be quite a volatile day, the results of which will determine the US currency's vector of movement.