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EUR/USD. Results of the week. Minor reports, dry Fed rhetoric and geopolitics

The US dollar index showed contradictory dynamics this week. Initially, at the start of the five-day trading period, it dropped sharply, returning to the area of the 111th figure. The market unexpectedly increased interest in risk, amid quarterly reports of the largest US banks (in particular, Bank of America and Bank of New York Mellon), which exceeded the expectations of most analysts. After that, the main Wall Street indexes went up, while the safe greenback came under pressure. In addition, on Monday it became known that British Prime Minister Liz Truss canceled the key points of her odious anti-crisis plan, which included large-scale tax cuts. And although this step subsequently did not help her stay in the chair of the head of government, directly "in the moment" it increased interest in risky assets. Against this background, the EUR/USD pair reached 0.9875 (one and a half week price high).


However, bulls on the pair were unable to develop an upward trend. On Tuesday, the US dollar index turned around and headed upward again. Throughout the week, including on Friday, the pair had been trading within a wide price range, actually circling in the area of 97-98 figures. Traders reacted reflexively and are reacting to contradictory macroeconomic statistics, mainly from the United States. For example, the greenback reacted positively to the published report in the real estate sector: the volume of construction permits issued in America increased by 1.4% in September after a serious decline in August (-8.5%). At the same time, the volume of housing sales in the secondary market (the release was published the next day) unexpectedly decreased, and immediately by 1.5% (with a forecast decline of 0.8%). The Federal Reserve-Philadelphia Manufacturing Index also turned out to be disappointing, which came out at -8.7 in October. While the growth rate of initial applications for unemployment benefits was at the level of 214,000 (a three-week low).

The above-mentioned macroeconomic reports (generally of a secondary nature) could not help – neither the EUR/USD bears nor the bulls. Of course, traders reacted to these reports accordingly, but only formally – literally after a few hours, the downward/upward momentum faded away.

Obviously, traders need a more powerful informational occasion that will allow them to either approach the parity level or break through the defense at the base of the 96th figure. For the development of the upward corrective movement, EUR/USD bulls need to settle above the 1.0000 mark, and for the continuation of the downward trend, bears need to go below the 0.9600 target. Current macroeconomic statistics are not able to cope with such tasks.

In my opinion, EUR/USD traders can only pin their hopes on larger-scale information campaigns. The vector of price movement will be determined primarily by the level of anti-risk sentiment.

By the way, Friday's dynamics of the dollar index eloquently illustrated the current situation. So, during the day, the greenback steadily strengthened its positions throughout the market, but at the start of the US session it weakened sharply: it became known that Russian Defense Minister Sergei Shoigu held telephone talks with US Defense Minister Lloyd Austin. According to Russian media, the parties discussed "topical issues of international security, including the Ukrainian issue." These are the second talks between the heads of defense departments this year (the first were in May). Amid general geopolitical tensions, this news was received by the market "with a bang". However, the growth of the EUR/USD pair was limited. Almost immediately, the press secretary of the president of Russia Dmitry Peskov said that following the conversation of the ministers, "there are no plans for a telephone conversation between Vladimir Putin and Joe Biden."

However, this moment highlighted the main idea: traders react sharply to news of a geopolitical nature. A decline in anti-risk sentiment can put significant pressure on a safe greenback - and vice versa, an increase in panic will allow dollar bulls to open a second wind.

Also, the tone of trading can be set by representatives of the Fed. But, to the disappointment of the EUR/USD bears, the members of the Fed have not yet decided to voice "ultra-hawkish" comments. In particular, many representatives of the central bank spoke this week – Philip Jefferson, Lisa Cook, Michelle Bowman, Patrick Harker, James Bullard, Charles Evans. In one form or another, they made it clear that the Fed is ready to continue taking steps to curb inflation in the United States. In one form or another, they hinted that they are ready to support a 75-point rate hike in November.

But the thing is that even before their speeches, the probability of a 75-point rate hike at the November meeting was estimated at 95%! That is, the market has already largely played this fundamental factor. While the members of the Fed are not yet ready to "increase the degree of heat", allowing, for example, a 100-point increase. They are also not ready to talk about more distant prospects (regarding the November meeting) – according to them, further decisions will be made taking into account incoming data, primarily in the field of inflation and the labor market.

Thus, traders of the EUR/USD pair in the medium term will continue to trade in the 100-point price range of 0.9750-0.9850. In my opinion, the downward dynamics will resume over time, but at the moment it is impossible to talk about prioritizing short or long positions. Given the current uncertainty, it is advisable to take a wait-and-see attitude for the EUR/USD pair.

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