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EUR / USD. Powell VS dollar – 1: 0

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Fed Chairman Jerome Powell has once again “put in place” dollar bulls, moderating their ambitions and appetites. Having voiced rather “dovish” rhetoric in the Congress, he put pressure on the greenback and, accordingly, extinguished the southern impulse on the eur / usd pair. Buyers were able to organize a correction by pulling a pair out of the 17th figure’s paws. However, the northern impulse also turned out to be short-term – already towards the end of the American session on Wednesday, the eur / usd bulls began to fix profits, after which the pair drifted around the middle of the 18th figure. By and large, Powell brought the pair back into the multi-week range of 1.1780-1.1900, dampening the ardor of dollar bulls with his pessimistic theses. And yet, despite yesterday’s events in Congress, it can be assumed that the dollar lost only one round, but not the battle as a whole. And the main battles on the eur / usd pair are still ahead. The Fed chairman’s rhetoric was predictable. The miracle did not happen: despite a three-month record rise in inflation, Powell, in fact, repeated the same theses that he voiced in Congress at the end of June. Their essence boils down to the fact that the growth of inflation indicators is temporary in nature, the US economy still needs incentives, and the US labor market “is still far from perfect”, since it differs by 8 million jobs from its level before the pandemic. Powell’s conclusions were self-evident: “There is no reason to rush to any tightening of monetary policy.” The market partly “agreed” with the head of the Federal Reserve, but only partly. The dollar retreated from its local maximums, but did not swoop down, reacting to Powell’s clearly “dovish” remarks. In my opinion, there are several reasons for such a greenback’s resistance to stress. First, despite his political significance, Jerome Powell cannot make decisions at the Fed alone. As you know, all the key issues of a monetary nature are resolved by members of the Federal Reserve collectively. And here it should be noted that not all members of the regulator share the position of their “boss” – some of them are still worried about the abrupt rise in inflation and the impact of QE on some sectors of the economy. For example, the head of the Federal Reserve Bank of St. Louis, James Bullard, recently called on the Fed to stop buying mortgage bonds. According to him, the acquisition by the regulator of these securities helps to reduce the cost of mortgage loans and, accordingly, inflate the “bubble” in the housing market. Secondly, it will be difficult for the Fed to “brush off” the record rise in inflation if this trend continues. And the likelihood of such a scenario is very likely, given some indirect signs. According to a number of analysts, at the moment, price increases are mainly taking place in rather narrow categories, but at the same time there are numerous signs that the list of these categories may expand – especially in light of the weakening of quarantine restrictions. In addition, large-scale fiscal and stimulus programs have created a savings bubble. Here we can recall the spring report of the Bloomberg agency, according to which consumers around the world accumulated $ 2 trillion 900 billion during periods of lockdowns and quarantine restrictions. At the same time, about half of these funds – that is, about $ 1.5 trillion – were accumulated directly by American consumers. In the opinion of those interviewed by Bloomberg, in the second half of the year they will begin to actively spend their accumulated funds on goods and services, thereby provoking inflationary growth. Taking into account the latest inflationary releases, the above forecast scenario began to be realized in late spring. Experts point to strong domestic demand amid limited supply and shortages of some goods due to supply disruptions. All this leads to higher prices. Americans are actively spending their accumulated funds, and demand in many cases exceeds supply, which is why the inflationary spiral is spinning more and more. In addition, the shortage of employees in a number of sectors of the economy is forcing employers to raise wages, which also contributes to accelerating inflation. In other words, the latest inflationary releases reflect the rise in prices for a wide variety of goods and services, including housing rents. This means that the US economy could hypothetically be close to overheating if the Fed does not respond. At least, this position is voiced by some currency strategists – in particular, by the conglomerate Goldman Sachs, who announced last week that, according to their estimates, the Fed will announce the curtailment of QE, if not in November, then in December, that is, at the final this year’s meeting. Summarizing the above, we can come to the conclusion that it is too early to write off the American currency: even the very fact of a split in the Fed’s camp can provide significant support to sellers of eur / usd. Especially against the backdrop of a slowdown in inflation in the eurozone and the prevalence of “pigeon” sentiments among the members of the European Central Bank. Given this fundamental picture, the current corrective rally in the eur / usd price can be used to open short positions towards the bottom of the 18th figure. – Source: InstaForex

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