FX.co ★ EUR/USD. European Central Bank issued the euro with a "ticket going down"

The European Central Bank kept all the parameters of monetary policy in the same form, while voicing cautiously optimistic rhetoric. The market was set up for a more dovish mood, so following the results of the July meeting, the euro temporarily strengthened its positions against the dollar. But all corrective pullbacks on the pair should now be considered as a reason to open short positions. After all, by and large, the initial reaction of the market was rather emotional in nature. De facto, the results of the July ECB meeting cannot be called hawkish: the central bank simply did not implement the most pessimistic scenarios that were discussed by experts on the eve of today's meeting. This factor also provided a small support for the single currency.

But if we ignore unnecessary emotions, we can come to a simple and fairly obvious conclusion: the ECB made it clear that the incentives can last much longer, relative to the earlier forecasts of the expert community. At the July meeting, the ECB outlined new guidelines for the future direction of monetary policy in accordance with the recent revision of the strategy. Let me remind you that the previous policy provided for a fairly flexible benchmark for inflation, the level of which should have been "slightly below 2%". According to the new strategy, the target level was set strictly at the 2% mark. In addition, under certain conditions, inflation may exceed the 2% target and this fact will not entail the adoption of immediate retaliatory measures by the ECB. It is still very early to talk about reaching the low.

Today, the ECB approved new benchmarks, but traders initially ignored this signal of an obviously dovish nature. Firstly, the market played back this fundamental factor last week, and, secondly, traders focused their attention on other aspects of today's meeting.

Thus, the ECB left the main parameters of both the RERR (Emergency Asset Purchase Program during a pandemic) and the ARR (Asset Purchase Program) unchanged. The PEPP project will be implemented at least until March 2022, while the APP volume will remain at around 20 billion per month. At the same time, the central bank said that the repurchase of assets under PEPP in the current quarter will continue to be carried out "at a significantly higher pace" than in the first months of this year.

At the final press conference, ECB President Christine Lagarde refuted suggestions that the central bank may curtail QE ahead of time: according to her, "curtailing any measures now would be premature." At the same time, she stressed that the PEPP program was not discussed at all at the July meeting. There was also no word about the increase in the old quantitative easing program of the APP after the completion of PEPP (on the eve of the meeting, similar rumors were exaggerated in the press).

On the other hand, all the optimistic messages of Lagarde were offset by subsequent comments of a pessimistic nature. For example, she allowed the resumption of inflation growth in the eurozone in the second half of the year. But at the same time, she noted that this growth will be due to temporary factors and the low base of 2020. According to Lagarde's estimates, we will observe a downward trend at the beginning of 2022. She also predicted the growth of the European region's economy in the third quarter. However, even here it was not without any complication. According to Lagarde, a new wave of coronavirus cases will primarily hit the service sector, which has just come to life. And this is despite the fact that about half of the adult population is vaccinated against COVID in the European Union.

In general, the messages that were just announced were heard earlier, and the ECB announced the "new strategy" at the beginning of this month. Therefore, the July meeting can be called a passing one. The central bank did not implement the most dovish scenarios (i.e., it did not announce the expansion and/or extension of incentives), but at the same time did not tighten its rhetoric. On the contrary, today a springboard was approved for maintaining the accommodation policy for a longer time. It is obvious that the future prospects of monetary policy will be determined in early autumn (ECB members are resting in August). According to Lagarde, the September forecasts will have a key impact on the policy of the ECB.

If we talk about long-term prospects, we can assume that the uncorrelation of the positions of the ECB and the Federal Reserve will become more pronounced over time. And this fact will serve as the main anchor for the EUR/USD pair. According to most analysts, the ECB will raise the key rate no earlier than the second half of 2024. At the same time, according to the Fed's median forecast, the US central bank may raise the rate as early as 2023, and twice. Moreover, there are more and more suggestions on the market that the central bank will decide on the first increase already within the next year. If we talk about the prospects for QE, then we can also talk about uncorrelation here. The number of hawks among the members of the Fed is increasing – with each inflation release. Some of them (for example, Bullard) directly call on the Fed to curtail incentives, preventing, in particular, the inflating a bubble in the housing market. While the hawkish exclamations among the ECB members have noticeably subsided: the ECB demonstrates a monolithic position regarding the preservation of the accommodative policy. All this suggests that the dollar will continue to maintain its dominant position in the EUR/USD pair.

The greenback stumbled at the beginning of the US session on Thursday, reacting to weekly data on the growth of initial applications for unemployment benefits. This indicator was supposed to drop to the 350,000 mark, but instead jumped to 419,000 (a monthly high). However, this factor only temporarily weakened the dollar's position: after a few hours, the US dollar index again headed towards the 93rd figure. The correction for the euro-dollar pair, respectively, ended as soon as it began.

Thus, short positions are still a priority for the pair. The first target of the downward movement is 1.1740 - this is the lower line of the Bollinger Bands indicator on the daily chart. The main target in the medium term is the round level of 1.1700, which corresponds to the lower line of the Bollinger Bands, but only on the weekly timeframe.