Low liquidity of the USD due Independence Day in the USA, profit taking on the Euro after a rapid rally at the end of Q2 and strong US statistics have led to correction in the pair EUR/USD. ISM business activity in the manufacturing sector has increased to a level of 57.8 in June, which is the highest level since August 2014, which is not surprising, given the fact that the USD fell for more than 6% since the beginning of this year. These facts have caused rapid rise in export orders, and the optimism of purchasing managers is growing. According to Capital Economics, current PMI figures show that US GDP has increased up to 4% in Q2. According to Federal Reserve Bank of Atlanta leading indicator has increased to 3%.
Assessment of the US GDP
Source: FRB of Atlanta.
Who knows, perhaps, it was business activity that laid the solid ground for implementation of the Fed's plans for restoration of the US economy in April-June after the sluggish development in Q1. In any case, FOMC representatives are waiting for the release of the US employment data for June, as it can affect the futures market. Currently, the probability of monetary restriction in September is estimated at a modest 19%. However, in case of the positive US employment data for June, the USD is likely to rise.
Probability of changes in the federal funds rate in September
Source: CME Group.
There is a strong opinion at Forex that the rally in the European currency is too rapid. Nordea and BTMU are saying about possibility of the short-term correction, and SEB has named three conditions under which EUR/USD will be traded at the level of 1.2; these are: strengthening of the fiscal cooperation within the Eurozone, reduction of domestic imbalances and the increase in the refinancing rate by the ECB. However, the Bank believes that these measures will not be taken in the next 6-12 months and predicts that the pair will be traded in the range of 1.05-1.15.
According to Goldman Sachs, despite some signs of the normalization of monetary policy, the Central Banks, competitors of the Fed, will move be less active than the American regulator, which will give grounds for the restoration of the USD’s positions in the second half of 2017.
In the short term, the EUR/USD bulls will have to go through trials: the market expects that the rhetorics of Peter Prieta and Yves Mersch will be "pigeon," the Fed will confirm its readiness to implement the plans indicated in the minutes of the FOMC meeting in June and the US employment statistics will be strong.
On the other hand, the "hawks" of the Governing Council, such as Jens Aidman and Ewald Nowotny, will be able to find smart answers in return, and if the minutes of last ECB meeting will contain statements about the normalization of monetary policy, this will become a reason for a surge of activity of the Euro’s supporters.
This week is going to be hectic, and if the pair EUR/USD will be able to go above the level of 1.129 by the end of the week, there are all chances that the rise will continue.
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