Ahead of the announcement of an update to the ZEW Sentiment Index towards the largest and most important German economy in the Eurozone. The price of the EUR/USD currency pair is moving in an upward correction range, settling around the 1.1895 level, around which at the time of writing the analysis. Nevertheless, the currency pair may be at risk of falling to its lowest levels since April around 1.17 in the coming days if the contents of the minutes of the last meeting of the Federal Reserve this week provide investors with reason to reduce their previous bets further towards the dollar.
The opportunity for the pair to bounce higher was clear after the release of the US jobs report for the month of June. The highlight of the domestic event this week is the release of the contents of the minutes of last month's ECB meeting on Thursday at 12:00 London time. That will only come after the June Fed meeting minutes are released on Wednesday at 19:00.
Commenting on these important events. says Peter Karpata, chief strategist at ING. “EUR/USD remains fragile and better-than-expected headline non-farm payrolls will keep the possibility of a drop open to the 1.1700 level. We expect the FOMC meeting minutes on Wednesday to have a significant reaction in how low the EUR/USD pair is this week.”
Last month's policy announcement included the FOMC's forecast that the Fed was likely to start a rate hike in 2023 if not soon, although the risk is that this week's minutes do not reinforce these expectations. Not only expectations, but also attracts attention. The $120 billion a month quantitative easing (QE) program and questions about when is the best time to start ending it. The latter may be what is commonly referred to as the "tapping" process, and any confirmation can raise US bond yields and in the process push the gap between Germany's and US yields - known as DE-U.S. The "yield spread" is beyond zero.
Jane Foley, an analyst at Rabobank, says: “We are not yet convinced that real yields provide enough support to allow a significant and sustained appreciation of the US dollar against the euro and a return to levels seen at the beginning of last year. While we revised our 1-month forecast for EUR/USD from 1.20 to 1.19, we are holding our 6-month forecast at 1.17.”
After the last European Central Bank meeting in June, it is unlikely that the content of the minutes of the last meeting of the bank will provide much support for the euro, especially since the Frankfurt-based institution said last month that it has 1,850 billion euros. The bond-buying program will continue “until the end of March 2022” At least, and in any case, until the board of directors decides that the phase of the coronavirus crisis is over.” The European Central Bank signaled in June that risks to the eurozone had become more "balanced" since the vaccine rollout in April and the start of the bloc's economic reopening process, but only warned last week that new strains of the coronavirus were "affecting the balance". of risks.”
According to the technical analysis of the pair: Despite the recent attempts to correct the EUR/USD currency pair, it is still subjected to downward pressure. The chance of a rebound will not be stronger without stability above the psychological resistance 1.2000, which may technically increase buying operations. The dollar's gains factors may pressure the pair to stabilize downward, as is the case in the general trend. The closest support levels for the pair are currently 1.1855, 1.1770 and 1.1700, respectively.
The Euro will be affected by the announcement of the German ZEW reading and the Eurozone retail sales.
