The resilience of the eurozone's economy breeds complacency. This is an extremely dangerous feeling given the ongoing monetary policy tightening by the European Central Bank, which is in effect with a time lag. According to Bloomberg's research, a 425 bps increase in the interest rate since the beginning of the cycle will harm the currency bloc's GDP by 3.8%. Taking into account the negative impact of the energy crisis and the withdrawal of fiscal stimulus measures, this figure will rise to 5%. It's no wonder that members of the Governing Council are starting to doubt whether monetary tightening should be continued in September, and EUR/USD is falling.

In reality, most investors, according to ING's opinion, still believe that the euro will rise against the US dollar by the end of the year. Bloomberg's expert consensus on the main currency pair stands at 1.12. Moreover, the corrections of 5% in February, 4% in May, and 3% in July-August in EUR/USD indicate the strength of the uptrend. It is becoming more challenging for the bears to push the quotes lower. However, expectations are one thing, and reality is another.

Strengthening the euro requires an improvement in the health of the global economy. Then procyclical currencies will become the favorites. Unfortunately, this is not happening at the moment. Meanwhile, the strength of the US labor market makes the Federal Reserve keep its finger on the pulse. FOMC official Michelle Bowman believes that the central bank will need to raise the federal funds rate from 5.5% to 5.75%. The US dollar is supported by a favorable external backdrop, such as rising bond yields due to massive Treasury issuances, credit rating downgrades by Fitch, and the start of the normalization of the Bank of Japan's monetary policy.

At the same time, there is a pullback in stock markets that have been surging for five consecutive months. The worsening global risk appetite is a powerful driver of EUR/USD's decline. In this scenario, investors' demand for the dollar as a safe-haven asset increases. The bears have one more trump card up their sleeve.

Despite the stability of the US economy, the business cycle has not been canceled. 67% of investors-respondents of MLIV PULSE believe that by the end of 2024 a recession will hit the US. Moreover, 20% of those polled predict a recession already in the current year. It's as if they don't believe the Fed, which no longer considers a downturn scenario in 2023.

Thus, the euro is currently not living up to expectations, and the weakness of the eurozone's economy could lead to a premature end to the cycle of monetary tightening by the ECB. On the contrary, the US dollar is in demand among investors due to the strength of the US economy, its safe-haven status, and the rally in Treasury bond yields.

Technically, on the daily chart of EUR/USD, the Three Indians pattern continues to unfold. We successfully utilized the retracement by shorting on the bounce from the resistance at 1.1035. We are holding the position and raising it on a breakthrough below the support level at 1.0965