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Don't fight against the Fed. Markets have been living with this rule for decades, however, the "bears" on US stock indices have to face not only the central bank but also Donald Trump, as well as Beijing, which has called on the population to buy local shares, arguing that promoting a healthy "bull" market has never been more important than now. As a result, the Shanghai Composite fired, and its American counterparts will think three times before deciding on a correction.
Although the scale of the Fed's monetary stimulus is enormous, FOMC officials say that the regulator can further increase the balance sheet if necessary. For some, this is a signal of the Fed's doubts about the bright future of the US economy, for others - a reminder that a war with the central bank is like death. No less dangerous is the confrontation with Donald Trump, who is preparing for the presidential election. Treasury Secretary Steve Mnuchin recalled the White House's intention to expand fiscal stimulus until the August holidays, and the head of state will do everything possible to ensure that the S&P 500 does not fall, because the stock index, in his opinion, is the best indicator of the effectiveness of its policies.
As a result, the sagging stock market is actively bought back, especially since, despite the growth in the number of infected with COVID-19, the number of deaths is not growing. Whether the cause is the weakness of the virus itself or the best preparation of medicine, it does not matter. The main thing is that the risks of repeated lockdown fall.
Dynamics of the number of infected and dead from COVID-19
The euro draws strength both from a reduction in the yield differentials of peripheral Eurozone bonds with their German counterparts, which indicates a reduction in financial stress; and from an improvement in global risk appetite thanks to China. It should be noted that large-scale fiscal and monetary incentives lead to an increase in the money supply, which has a positive impact on global stock indices and a negative impact on safe-haven currencies. In this regard, the medium and long-term prospects for the US dollar look bleak, and the EUR/USD falls, just like the S&P 500 pullbacks, are quickly redeemed.
Dynamics of money supply and global MSCI
The ECB bulls are not embarrassed by the ECB meeting scheduled for the end of the week by July 17 and the EU summit, which will discuss the Franco-German proposal for a fiscal stimulus of € 750 billion. Angela Merkel reminded that Europe is facing an unprecedented crisis. Most likely, we expect a positive verdict, which is extremely important for the recovery of the upward trend in EUR/USD. As for the ECB, despite the forecasts of Bloomberg experts about the expansion of QE by €500 billion by the end of the year, it is unlikely that Christine Lagarde will talk about this at the next meeting.
Technically, the euro managed to break away from the upper border of the previously formed triangle. A successful retest of support at $ 1.125-1.1255 indicates the strength of the "bulls" and allows you to make recommendations about buying EUR/USD on breakouts of resistance at 1.1375 and 1.14 with the specified pattern AB=CD target at 1.16.
EUR/USD, the daily chart
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