Last week, the EUR/USD pair showed significant growth, responding to the slowdown in US inflation and the increase in "dovish" expectations about the Fed's future actions. On Wednesday, Thursday, and Friday, the daily candles reflected confident price growth, with the pair rising by 100 points over three days and ending the trading week at 1.0908.At the start of Monday's trading, the pair pulled back south to the 8th-figure area. The corrective pullback was due to two main reasons: weak growth in the Chinese economy and an attempt on Donald Trump. More precisely, not the attempt itself, but its consequences. The Republican leader's support rating has increased even more: he now leads President Joe Biden by a considerable margin.
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The rise in anti-risk sentiment allowed EUR/USD bears to organize a modest correction, but it is premature to talk about the resumption of a southern trend. In my opinion, the greenback can only be helped by Fed members if they are sceptical about the idea of an additional rate cut (after the September cut) within 2024.Nevertheless, today's release (as well as the "Trump factor") should not be ignored, as it will remind us of itself more than once, especially when discussing the pace of the Fed's rate cuts.So, today, it became known that the growth of the Chinese economy has slowed to its lowest level in more than a year. The country's GDP increased by only 4.7% year-on-year in the second quarter. This is the weakest growth rate in the last five quarters. Most experts had forecasted a decline, but not as significant, to 5.1% (growth was 5.3% in the first quarter).The report's structure shows that fixed asset investment volume grew by 3.9% after a 4.0% increase in the previous reporting period. This indicator has been declining for the third consecutive month. The decline continued in the real estate sector as well (investments fell by 10.1%). Retail sales also disappointed: the retail trade volume grew by only 2.0%, with a forecast of 3.4% growth (the slowest growth rate since 2022), indicating low consumer activity despite the government's subsidy program and efforts to stimulate the replacement of certain goods (used household appliances and cars).Only the data on China's industrial production came out in the "green zone," although even here there was a downward trend. Industrial production volume increased by 5.3% in June, with a forecast of 4.9%. In May, the figure was 5.6%. Overall, the downward trend has been recorded for the second consecutive month.Reacting to this release, the pair updated its daily low, marking 1.0884. However, bears failed to develop the southern movement: already at the start of the European trading session, the price turned north again.The market is still dominated by "dovish" sentiments. The probability of monetary policy easing at the September meeting has risen to 95%, according to the CME FedWatch tool. The likelihood of another 25 basis-point cut (after the expected 25-point cut in September) at one of the subsequent meetings (i.e., in November or December) is over 50%. This is the main "headache" for dollar bulls.Only the Fed members can handle this problem if the majority of them question the feasibility of another rate cut this year. Until then, the dollar will remain under significant pressure as "dovish" expectations continue to build. Since the publication of the CPI, only one Fed representative, Mary Daly, has allowed for "one or two" rate cut rounds. Her colleagues either haven't commented on the latest releases or have merely noted the downward CPI trend (Austan Goolsbee and Alberto Musalem). Therefore, other Fed members' speeches expected this week can tip the scales either way. Today, Fed Chair Jerome Powell will speak during the American trading session; on Tuesday, Fed Board of Governors member Adriana Kugler will speak; on Wednesday, Board member Christopher Waller and Richmond Fed President Thomas Barkin will speak; on Friday, San Francisco Fed President Mary Daly, New York Fed President John Williams, Atlanta Fed President Raphael Bostic, and Board member Michelle Bowman will speak.Particular attention should be paid to today's speech by Powell. His position will largely determine the fate of the US dollar in the medium term. He has spoken several times over the past two weeks (at the Sintra forum and in Congress), but all these speeches were before the CPI growth data release (which came out in the "red zone") and the producer price index release (which came out in the "green zone"). Therefore, his comments here are particularly important—he can either "sink" the dollar or cool down EUR/USD buyers by questioning the prospects of a November/December rate cut.If the Fed Chair does not throw a "lifeline" to the greenback, the EUR/USD pair will rise to at least the resistance level of 1.0960 (the upper line of the Bollinger Bands indicator on the weekly chart). The main target is the psychologically important price target of 1.1000.
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