Markets did not believe Christine Lagarde that amid rising global risk appetite and falling energy prices, the EURUSD rally to its highest levels since late September. Nevertheless, the saturated and potentially "bullish" calendar for the US dollar in the first week of November cooled the ardor of buyers of the main currency pair.
Obviously, the head of the ECB wanted to buy time, announcing that decisions on quantitative easing programs will be made in December, high inflation is temporary, albeit longer-lasting than previously thought, and markets are wrong about expectations of a rate hike by the central bank in 2022. All this did not make much of an impression on the investors, as Lagarde was already expected to have "dovish" rhetoric. As a result, the principle "sell the rumor, buy the fact" worked, thanks to which the pair jumped to the top of the 16th figure. It was supported by the next record highs of the S&P 500 and the fall in gas and coal prices. The energy crisis has put pressure on the eurozone economy, and the sooner it ends, the better the euro will feel.
At the same time, Christine Lagarde's inability to rein in financial markets is clearly not enough for EURUSD to rise above the base of the 17th figure. The pair needs fresh drivers, and most of the trump cards are still in the hands of the "bears." In the week of November 5, the Fed and the US employment report for October can lend a helping hand to them.
Currently, the Fed is expected to announce the end of its $120 billion quantitative easing program from December. The volume of purchases of treasury bonds will be reduced by $10 billion, mortgage - by $5 billion per month. A more aggressive shift is fraught with the strengthening of the US dollar. Why doesn't the Fed follow the path of the Bank of Canada and announce that it does not need QE in the face of a full economic recovery? All this is out of the realm of fantasy, but one should not rule out a more serious reduction in asset purchases than the markets expect.
Dynamics of purchases of assets in the framework of the American QE
The data on the US labor market for October can provide no less support to the "bears" on EURUSD. Bloomberg experts predict an acceleration in employment growth from 194,000 to 385,000, which will increase the chances of an earlier increase in the federal funds rate than is currently expected. CME derivatives signal the first act of monetary restriction by the Fed at the end of the second quarter, the second at the end of 2022. If these dates are shifted to an earlier period, the US dollar will only benefit from this.
The potentially bearish calendar of the first week of November has already provided a shoulder to the EURUSD sellers. Their opponents failed to gain a foothold above the important level of 1.168, which is a sign of their weakness.
Technically, a drop in quotes below the dynamic supports in the form of moving averages and fair value at 1.1595 will create prerequisites for the retracement of the downward trend for EURUSD, in the direction of at least 1.145. The recommendation is to sell.
EURUSD, Daily chart
