Today, the windless weather on the foreign exchange market: the European session was not rich in macroeconomic reports, and the US trading platforms are completely closed: Independence Day is celebrated in the United States. The nearly empty economic calendar allows you to take a wait-and-see position, especially on the eve of Friday's releases, which will certainly provoke strong volatility.
It is noteworthy that on the eve of a "stormy Friday" the market ignored a rather alarming signal, which was voiced by US President Donald Trump. He again accused China and Europe of using currency manipulations, also complaining that Washington only obediently observes this process. The Chinese Foreign Ministry has already responded to this statement by Trump, publishing a concise refutation of the voiced accusations. Brussels ignored the words of the American president, although the reaction of Europe would hardly be different from the Chinese.
On the one hand, the situation has exhausted itself - Donald Trump often voices his thoughts or complaints with the help of Twitter. On the other hand, the concern of the US president about this issue is alarming for some currency strategists (in particular, Bank of America), given Trump's ability to take unconventional steps in his policy. Therefore, after the head of the White House once again accused Europe and China of manipulating currency, experts began saying that the president could initiate the use of currency intervention in the coming months. Analysts estimate the likelihood of this scenario in different ways. But almost all of the economists surveyed by Bloomberg do not exclude such a scenario. Especially - if the Fed in July does not reduce the interest rate, and the ECB, in turn, will prepare the ground for the introduction of additional incentives in the autumn.
As some currency strategists believe, the White House needs a substantial dollar drawdown across the entire market - by 10-20%. In the context of the euro-dollar pair, this means that the price should rise to levels five years ago, to the area of 1.31-1.37, up to level 40. Naturally, this will cause a domino effect - eurozone inflation is not the only thing that will suffer, but the entire EU economy as a whole, after which the ECB will resort to appropriate mitigation measures. But, as they say, "in war - as war": by launching a flywheel of currency manipulations, the White House will understand perfectly well that central banks of other countries will take a defensive position, devaluing their currencies.
As you know, there are several types of interventions, among them sterilized and unsterilized. In the first version of the intervention, the New York Fed will acquire or sell securities on the open market, but will not interfere with monetary policy. Unsterilized intervention directly affects the money supply and rates. And if during sterilized currency intervention the value of the monetary base is maintained, in the second case, the intervention leads to a change in the monetary base. What kind of tool the White House will apply is an open question, and it has become increasingly discussed in the foreign exchange market. According to many analysts, Trump's rhetoric in this regard will only become tougher in the near future.
But the traders actually ignored the important, in my opinion, signal from the US president. The market is focused on the upcoming events, namely the Nonfarm, which will be published tomorrow. According to preliminary forecasts, the growth rate of people employed in the non-agricultural sector will grow to "acceptable" values, that is, to 164 thousand. This is much less than the levels at which the indicator went out during the past year and the first quarter of the current year: the indicator practically did not fall below the 200 thousandth mark, and often exceeded the 300 thousandth level. But compared to May, when the number of employed has grown by only 74 thousand, this result will look quite good - but only if the real figures coincide with the predicted ones.
Let me remind you that, according to the latest ADP report, the number of people employed in June increased by only 102 thousand. This report is the main guideline on the eve of the publication of official data. Given the relatively weak result from ADP, the June Nonfarm may also disappoint traders. In this case, the dollar is unlikely to be able to hold its position and weaken throughout the market. You should also pay attention to the indicator of the average hourly wage, which is an inflationary indicator. On a monthly basis, over the past three months, it has been at the same level - 0.2%. And on an annualized basis, the index in May is minimal, but unexpectedly dropped from 3.2% to 3.1%. In June, wages should demonstrate a positive trend - both in monthly and annual terms. If this forecast is not justified, the US currency will fall under additional pressure.
In general, tomorrow's release either eliminates concerns about the aggressive easing of the monetary policy of the Fed, or, conversely, returns concern about this. In the second case, the EUR/USD pair will get another chance to gain a foothold in the 13th figure, breaking the resistance levels of 1.1305 (the Bollinger Bands average line on the daily chart) and 1.1340 (the Tenkan-sen line on the same timeframe). Otherwise, the bears will finally seize the initiative on the pair, up to the achievement in the medium term, up to the lower limit of the Kumo cloud on D1, that is, to the level of 1.1185.
