The PMI indices published today left a double impression: some components of the release exceeded forecasts, being in the "green zone", while others disappointed investors, not reaching the forecast values. Such a contradictory result still allowed EUR/USD buyers to develop an upward trend, but the upward corrective impulse faded in the area of the resistance level of 1.1730 (Tenkan-sen line on the D1 timeframe). The greenback's positions, in turn, weakened somewhat throughout the market on the eve of the economic symposium in Jackson Hole, which starts this Thursday.
Traders were concerned about the comments of Fed representative Robert Kaplan – a consistent "hawk" - who on Friday voiced very "dovish" theses. He reported on the continuing risks in the context of the spread of a new strain of coronavirus. The Dallas Federal Reserve president warned that the regulator may reconsider the need for an early curtailment of the stimulus program, "if the virus continues to attack, harming the economy."
Such a remark quite justifiably worried investors, since over the past month the number of cases of coronavirus in the United States has increased several times. According to the total number of cases over the past week, the country has returned to the sad indicators of last year. Five American states broke anti-records for the number of new cases of infection over the past weekend. The number of infected children is also growing: the number of hospitalized minors has reached a new peak in recent days.
This is one side of the coronavirus crisis. The other side of the coin is expressed in the reaction of the authorities to the current situation. Commenting on the surge in morbidity, US President Joe Biden on Friday noted that the majority of hospitalizations and deaths are accounted for by those who have not yet been vaccinated. At the same time, he noted that the pace of vaccination against COVID-19 is accelerating in the United States.
In other words, the White House again repeated the thesis that a "pandemic of the unvaccinated" has begun in the country. They are not talking about tightening quarantine restrictions yet – instead, representatives of the health department have called for vaccination against coronavirus. People are being asked to get vaccinated urgently due to the spread of a new strain of COVID-19. The representative of the White House (coordinator for the fight against coronavirus), also reported that unvaccinated people represent "almost all cases of hospitalization and death". Figuratively speaking, the United States shifted responsibility for the consequences of the new COVID wave to unvaccinated citizens, while no one seriously allows a repeat of the events of last year, when the country's economy was actually frozen. Therefore, the increase in the incidence of coronavirus in the United States is poorly reflected in the positions of the greenback: EUR/USD traders view the current situation "in their own way"- through the prism of possible lockdowns. By the way, today it became known that the Chinese authorities were able to contain a new wave of the spread of coronavirus: yesterday, no new cases of coronavirus infection were detected in this huge country. This fact reduced the anti-risk sentiment in the market.
All this suggests that in Jackson Hole, the pendulum may swing both in the direction of an early curtailment of QE, and in the direction of a wait-and-see position. Jerome Powell, as you know, is not a "hawk" – but at the same time, many of his colleagues are openly lobbying for the idea of an early start to reduce incentives. Strong nonfarm payrolls report, as well as high values of inflation indicators (despite the first signs of a slowdown in CPI growth), allow the head of the Federal Reserve to allow the option of curtailing QE this year. This is the "hawkish maximum" that Powell is capable of. But it will be quite enough for dollar bulls to organize another rally.
Returning to the prospects for the euro, it should be noted that the problem of the spread of the delta strain is also relevant for the European Union. The European Center for Disease Prevention and Control in its consolidated report recently warned that experts expect the epidemic situation to continue to worsen in many EU countries due to the spread of the Indian strain. According to experts, by the beginning of September, the "delta variant" of the COVID-19 will account for about 90% of cases of infection circulating in the European Union.
The PMI indices published today only confirmed investors' concern about this fact. The German PMI in the manufacturing sector fell to 62 points (from the previous 66-point value). A similar dynamics was demonstrated by the general European indicator in this area. For the sake of fairness, it should be noted that the business activity index in the US manufacturing sector (Manufacturing PMI) also came out in the "red zone" today: instead of the projected growth to the level of 62.5 points, it came out at the level of 61.2 points (in July, the indicator reached almost 65-point value).
However, the published macroeconomic statistics have only a background effect on the EUR/USD pair. Traders are approaching the local resistance level (1.1730), but they do not dare to consolidate higher in order to identify themselves at the borders of the 18th figure in the future. While the dollar is under pressure from the cautious rhetoric of Robert Kaplan, the European currency is not able to "intercept the banner", since it is also under an array of fundamental problems (the spread of the delta strain, the" dovish " rhetoric of ECB representatives, contradictory macroeconomic reports, etc.). Therefore, traders are forced to "hover" in the flat, within the 17th figure. This trend is likely to continue until Jerome Powell's speech at the symposium (August 27).
If buyers still overcome the intermediate resistance level of 1.1730 on the wave of weakening of the greenback, it will be possible to consider the option of longs with a target of 1.1790 – this is the main price barrier, which corresponds to the average line of the Bollinger Bands indicator, coinciding with the Kijun-sen line on the D1 timeframe.
