After the best rally of American stock indices since June, there's a sense that even one soldier can make a difference in the battlefield. Nvidia, the stock market's headline-maker, posted second-quarter revenues of $13.5 billion and an expected third-quarter revenue of $16 billion, both surpassing Wall Street expert forecasts, as did earnings per share. As a result, quotes soared by 8%, pulling not only the Nasdaq 100 and S&P 500 but also the EUR/USD along with it. However, the euro turned out to be just a temporary leader in this situation.

Dynamics of U.S. stock indices

The achievements of companies focused on artificial intelligence undoubtedly attract attention. However, it's hardly appropriate to talk about an increased global risk appetite due to a handful of rapidly growing stocks. The U.S. economy is cooling and will continue to do so under the influence of the Fed's aggressive monetary tightening. The yield of Treasury bonds is rising dramatically. Its gap with the dividend yield of equity securities is the largest in the last 15 years. Moreover, investors have mentally prepared themselves for the return of an era of high interest rates—reminiscent of the 1970s.

Against this backdrop, a recovery in the upward trend for the S&P 500 looks problematic. Safe-haven assets, including the U.S. dollar, will continue to see increase demand, creating significant obstacles for EUR/USD's upward journey.

The euro can't rely on either the eurozone economy or the ECB's monetary policy tightening. August statistics on the currency block's business activity left "bulls" in the main currency pair stunned. The Composite Purchasing Managers' Index dropped to 47, its lowest level in the last 33 months. It's below the critical mark of 50 for the second consecutive time, indicating a GDP reduction. Bloomberg experts estimate it at 0.2% for the third quarter. This fact puts pressure on EUR/USD.

Dynamics of business activity in the eurozone

It's worth noting that the American PMI in August also left much to be desired. It plummeted to a half-year low, but it remained above 50. The U.S. economy continues to expand, and the divergence in economic growth allows the dollar to maintain its confidence against the euro.

The weakness in business activity and heightened recession risks might deter the ECB from raising the deposit rate at its September meeting. The futures market assesses the probability of its growth to 4% as fifty-fifty. Meanwhile, the chances of the Fed increasing borrowing costs to 5.75% and above by the end of 2023 have surged to 40%. The cause? Anticipation of Jerome Powell's hawkish rhetoric at Jackson Hole. According to Goldman Sachs, the Federal Reserve Chairman will place heightened emphasis on high inflation and combating it.

Technically, the EUR/USD bulls' inability to play off the pin-bar and stay above the lower boundary of the fair value range at 1.086 demonstrates their weakness. We continue to sell the main currency pair with targets at 1.071 and 1.066.