The July discount confirmed, the dollar is losing value

Yesterday, Fed Chairman Jerome Powell at the Financial Services Forum of the House of Representatives during the presentation of the report FED on monetary policy, he said:

"After the last FOMC meeting, uncertainties related to trade tensions and concerns about global growth continued to have a negative impact on the growth outlook for the US economy."

In practice, this determines the interest rate cut in the US at the FOMC meeting on 31 July.

Powell's words perfectly corresponded to the minutes of the last FOMC meeting, also published yesterday. It could read that many FOMC representatives were convinced that if the risks associated with trade wars and falling inflation in the US did not subside, additional support in the form of cutting the cost of money would be needed soon. Only "some" of the decision-makers believed that in June there were still no strong arguments in favor of a rate cut and that such a decision should wait for more information.

The rate cut is decided

Powell's occurrence and FOMC minutes meant that the futures market re-estimated the July reduction by 25 basis points (pb) as a certain one, although even without this probability it was at a very high level of 95 percent. At the same time, the probability of a cut by 50 pb also increased, although the chances of such a move are still virtually nil. In the market assessment, this probability increased to 23,5 percent. from below 10 percent this week and from 25 proc. Before the publication of Friday, clearly better than expected, data from the US labor market (in June, employment in the non-agricultural sector increased by 224 thousand against forecasted 160 thousand).

Confirmation of the July rate cut in the US has overestimated the dollar, which in recent days has gained in value, reacting to Friday's employment data. EUR / USD exchange rate he made a turn around 1,12, practically making up for Friday's losses. The dynamics of the increase may not be the greatest, but the mentioned turn means that the sequence of higher and higher local minima drawn from the last days of May (1,1116 => 1,1181 => 1,1193). If you add the fact that the US economy has a greater potential for negative surprises than the European one, and the Fed may much more loosen monetary policy than the ECB, there is fuel for further increases in EUR / USD.

Assuming that the current sequence of movements will remain on the EUR / USD chart, one should expect slow increases first to the June summit (1,1412), and then a little higher. And it was only there, somewhere at the turn of July and August, that another change in the balance of power and a new wave of inheritances would be possible.

Diagram EUR / USD, D1 interval. Source: MetaTrader 4 Tickmill