The appetite for risk has clearly subsided this week. The dollar recovers, and the stock markets are in the red.
Since the beginning of the week, a rebound of the recent dollar decline has been underway. Friday's US labour market data were a kind of final touch. They determined that in order to announce the beginning of cutting off the monetary stimulus, FOMC members will want to review at least one more report showing the condition of this key area of the economy for the monetary policy. Investors turned away from the dollar for practically two weeks, the pretext of the Fed's decreased tendency for normalisation was squeezed out like a lemon - in order for the dollar to continue losing, fresh impulses are needed, above all constructive information on other currencies, new points of contact.
ECB perceptions change like the weather
Inflation in the eurozone is at its strongest in about a year, reflected in a series of public speeches by some policymakers expressing concern about rising prices. As a result, the market will look for clues on the future of the pandemic emergency purchase programme (PEPP) and the ECB's expected trajectory of consumer price dynamics. A potential reduction in the pace of quantitative easing with an optimistic assessment of the economy's health would be a sign that the crisis tools would become a thing of the past after the first quarter of next year.
In such a scenario, the EUR/USD pair would turn its back towards the recent highs (1.19). However, it seems the Governing Council will want to keep its cards hidden as long as possible, and today's meeting will bring as few specifics as possible. After three days of correction, the disappointment should not be too strong. The press conference to conclude the European Central Bank's Governing Council meeting will start at 2:30 p.m.
The perception of the ECB's attitude has been subject to a strong reshuffle in recent months: at the beginning of this quarter (after the inflation target was changed to a range around 2%), investors practically threw the ECB into the same pot as the Bank of Japan and the Swiss National Bank, which would not be able to even think about raising rates for many quarters. Today, overly inflated expectations seem to prevail regarding the timing of the start of normalisation and especially the authorities' communication. However, what goes around, comes around. According to our forecasts, we expect the dollar to lose value in Q4: the EUR/USD will drift towards 1.20.