On Forex, hopes are constantly replaced by disappointment and these give way to new hopes. You need to get used to it in order to survive. At the end of April, after the release of eurozone GDP statistics, the EUR/USD bulls believed that the downtrend was finally over. However, Jerome Powell dissuaded them in this. It would seem that the statement by the Fed chairman about the temporary nature of the slowdown in inflation should not have stirred up the markets. In fact, when they are almost 70% sure of the reduction in the federal funds rate in 2019, the Central Bank's lack of concern about the reduction in the growth rate of the PCE produces a bomb effect.
Contrary to pessimistic forecasts from Markit with its declining business activity, the eurozone economy turned out to be much more resistant to external shocks than what could have been supposedly. In the first quarter, the GDP grew by 0.4% q/q and by 1.2 g/g, although purchasing managers' indices indicated a modest expansion of 0.2% q/q. When temporary negative factors disappear and the de-escalation of the trade conflict between Washington and Beijing gives hope for a V-shaped economic recovery of the Middle Kingdom and the growth of German exports, the EUR / USD bulls turned for a counterattack. Rumors began to circulate in the market that LTRO would not be as generous as it was previously expected that it was possible to draw a bottom under the euro in the $ 1.1-1.12 area, amid the growing likelihood of a reduction in the federal funds rate in 2019. Alas, yet, Jerome Powell and his company had a different opinion.
Dynamics of European GDP
If in March the Fed was seriously concerned about the slowdown in inflation. Then, why did the Central Bank's fears disappear at a time when the personal spending index really slowed down to 1.6% y/y? Does the Fed know what everyone else doesn't know? This is true, judging by optimistic forecasts for the April consumer price index (+ 2.1% after + 1.9% in March) and core inflation (+ 2.1% after 2%). The release of data on US CPI promises to be the key event of the week by May 10, while investors are trying to digest what Jerome Powell said.
In my opinion, the markets paid too much attention to the word "temporary" and completely lost sight of the word "symmetrical". The Fed is changing approaches to inflation targeting. She is willing to tolerate PCE above the 2% target in periods of economic growth and below 2% in times of recession. The average indicator will be monitored, which means that the rate may not change for a very long time.
US inflation dynamics
From a fundamental point of view, this means that the fate of dollar pairs will not depend on the dollar. In order to weaken the EUR/USD pair, a softer position of the ECB is required than at the present, which looks questionable amid the recovery of the eurozone economy.
Technically, the April minimum update will increase the risks of target implementation by 161.8% using the AB = CD pattern. It corresponds to a mark of 1.1. On the contrary, the return of euro quotes to the range of $ 1.12-1.15 with the subsequent assault on resistances at $1.127 and $1.132 will return the initiative to the bulls.
EUR / USD daily chart
