Despite local failures, the EUR/USD pair managed to close the week by July 17 in the green zone. The ECB's wait-and-see attitude, the Central Bank's reluctance to end its emergency asset purchase program ahead of time, and the more favorable epidemiological situation in the Old World compared to the New pushed the euro above $ 1.14. Investors are eagerly awaiting the EU's verdict on the Franco-German fiscal stimulus project, which will become known on Saturday. In this regard, the opening of a new five-day period on Forex is fraught with gaps.

The US dollar, to the surprise of many investors, positively received strong statistics on industrial production, retail sales and the real estate market. The previous concept of selling it as a safe haven asset in case the data for the United States is disappointing is no longer working. Markets have calmed down after the shock, with roughly identical central bank rates allowing trading to thrive on the news. There is another factor that does not allow you to use the previous strategy: from the point of view of P/E, the S&P 500 looks pretty overbought. Investors are afraid that the inflated bubble will burst, and do not rush to buy shares.

P/E dynamics for stocks included in the S&P 500 calculation base

A $ 210 billion reduction in the Fed's balance sheet since July 10, an increase in the number of hospitalizations in the United States, and continuing tensions between Washington and Beijing are other obstacles to the stock index's path to the north. According to Donald Trump, no sooner had the ink dried after signing a trade agreement with China, as it sent a plague to the United States. According to Wall Street experts, the Fed's balance sheet will grow this year to $ 8.5 trillion, not by $9.5 trillion, as expected in the May forecast.

As long as US stock indices are stable, internal factors come into play. While the latest state-by-state macro statistics may be pleasing to the eye, the sharp increase in the number of COVID-19 infections increases the risk that the situation will worsen in the future. The euro, on the contrary, is experiencing a surge of optimism due to the rapid recovery of the Eurozone economy. Perhaps the ECB could already improve its GDP forecast (-8.7% in 2020 and +5.2% in 2021), but this would provoke a sell-off in the bond market of the peripheral countries of the currency bloc, which is not part of the plans of Christine Lagarde and her colleagues.

Dynamics of recovery of the Eurozone economies

On the contrary, the fact that a large-scale fiscal stimulus leads to an increase in public debt and emissions, and auctions - to an outflow of capital from the secondary market, may require the ECB to increase activity in the form of expanding the scope of QE.

The key event of the week by July 24 will be the release of data on German and European business activity, which will allow you to make sure or be disappointed in the speed of the return of GDP to the trend. In the meantime, the market is waiting for the EU's verdict on the Franco-German fiscal stimulus project. A positive decision will increase the risks of opening EUR/USD at the top of the 14th figure; adjusted program volumes or an additional summit may cause the pair to sink to 1.1365–1.138. A further correction to 1.13 and 1.125 will create an opportunity for purchases with a target of 1.157-1.158.

EUR/USD, the daily chart