The euro/dollar pair started the trading week briskly: at the beginning of the European session, traders reached the upper boundary of the price range of 1.0960-1.1070, within which the pair has been trading for the third week in a row. Having reached the 1.1060 mark, EUR/USD buyers predictably locked in profits, extinguishing the upward momentum. However, this did not help the sellers: the price settled into a drift at the base of the 10th figure.
A brief excursion into history
Looking at the weekly EUR/USD chart, we see that the pair was in an upward trend from October 2022 to February 2023, rising from the lows of the 96th figure to the 1.1034 mark. These price dynamics were mainly due to the hawkish mood of the ECB and the attraction to risk assets. At the same time, the Fed’s rhetoric had a “finalizing character” against the backdrop of slowing inflation in the US. The situation then changed: in late winter, inflation indicators slowed their decline, after which the rhetoric of the Fed representatives noticeably tightened. The market was filled with rumors that the Federal Reserve would revise the upper limit of the current monetary policy tightening cycle upward – to 5.50% or even 5.75%. There were also assumptions that the Fed might return to more aggressive rate hikes (50 or 75 points).
This background information helped EUR/USD bears organize a southern counterattack, resulting in sellers reaching the 1.0537 mark.
The “bearish feast” ended in early March. After the collapse of two major American banks, Silicon Valley Bank and Signature Bank, the US regulator significantly softened its rhetoric. At the March meeting, the central bank raised the rate by a modest 25 points and clarified that this would be the penultimate decision in this cycle. The central bank did not mention at all about accelerating the pace of rate hikes (even hypothetically), and the updated median forecast for rates at the end of 2023 remained unchanged: the “dot” forecast assumed one more rate hike of 25 basis points (this option was implemented at the May meeting).
At the same time, the European Central Bank maintained its hawkish stance against the backdrop of the ongoing growth of core inflation in the eurozone.
The sharply changed fundamental picture for the EUR/USD pair allowed buyers to regain lost positions: within two months, the price rose by more than 500 points. The pair returned to the 10th figure area.
However, traders have practically fallen into a stupor at this stage: both buyers and sellers of EUR/USD. Since mid-April, the pair has been circling the 9–10 figures, not leaving the range of 1.0960–1.1070. The May meetings of the Fed and the ECB also failed to break the deadlock: the central banks raised rates by 25 points but at the same time indicated that the further prospects for monetary policy tightening would depend on the dynamics of inflation growth.
All attention is on inflation
Given that the current week will be “under the sign of American inflation,” it is not surprising that EUR/USD traders are reluctant to open large positions – neither southward nor northward. Market participants are forced to trade in a narrow price corridor as strong or weak inflation reports can redraw the fundamental picture for the pair. Suppose all planned releases (Consumer Price Index, Producer Price Index, Import Price Index) come out at least at the level of forecasts (not to mention the “red zone”). In that case, the dollar will come under significant pressure. In this case, the issue of raising the rate in the next two months will be removed from the agenda. Remember that even strong Nonfarm payrolls, published at the end of last week, did not help the greenback: according to the CME FedWatch Tool, the probability of a 25-point rate hike in June is only 7%. Accordingly, the market estimates the probability of maintaining the status quo at 93%. According to preliminary forecasts, the key inflation indices should reflect a US inflation slowdown. If the real figures coincide with the forecasted ones, buyers will again try to enter the 11th-figure area, marking the development of a northern trend.
However, if, contrary to forecasts, the reports mentioned above have a “green tint,” bears will surely seize the initiative. In this case, a large-scale correction is likely, with the first target at 1.0910 (the lower line of the Bollinger Bands indicator on the daily chart) and the main target at 1.0820 (the middle line of the Bollinger Bands on the weekly chart coinciding with the Tenkan-sen line).
Conclusions
After almost two months of steady growth, the EUR/USD pair is drifting, reflecting the indecision of both buyers and sellers. Traders are reluctant to open large positions – southward and northward – ahead of the publication of key US inflation growth data. Inflation reports are important in themselves, but in the current circumstances, they can play a decisive role in determining the direction of the EUR/USD price.
Given such a high degree of uncertainty, it can be assumed that soon (before the release of the CPI on Wednesday), the pair will continue to “flatten” – trade in the range of 1.0960 – 1.1070.
The material has been provided by InstaForex Company – www.instaforex.com
The euro/dollar pair started the trading week briskly: at the beginning of the European session, traders reached the upper boundary of the price range of 1.0960-1.1070, within which the pair has been trading for the third week in a row. Having reached the 1.1060 mark, EUR/USD buyers predictably locked in profits, extinguishing the upward momentum. However, this did not help the sellers: the price settled into a drift at the base of the 10th figure.
A brief excursion into history
Looking at the weekly EUR/USD chart, we see that the pair was in an upward trend from October 2022 to February 2023, rising from the lows of the 96th figure to the 1.1034 mark. These price dynamics were mainly due to the hawkish mood of the ECB and the attraction to risk assets. At the same time, the Fed’s rhetoric had a “finalizing character” against the backdrop of slowing inflation in the US. The situation then changed: in late winter, inflation indicators slowed their decline, after which the rhetoric of the Fed representatives noticeably tightened. The market was filled with rumors that the Federal Reserve would revise the upper limit of the current monetary policy tightening cycle upward – to 5.50% or even 5.75%. There were also assumptions that the Fed might return to more aggressive rate hikes (50 or 75 points).
This background information helped EUR/USD bears organize a southern counterattack, resulting in sellers reaching the 1.0537 mark.
The “bearish feast” ended in early March. After the collapse of two major American banks, Silicon Valley Bank and Signature Bank, the US regulator significantly softened its rhetoric. At the March meeting, the central bank raised the rate by a modest 25 points and clarified that this would be the penultimate decision in this cycle. The central bank did not mention at all about accelerating the pace of rate hikes (even hypothetically), and the updated median forecast for rates at the end of 2023 remained unchanged: the “dot” forecast assumed one more rate hike of 25 basis points (this option was implemented at the May meeting).
At the same time, the European Central Bank maintained its hawkish stance against the backdrop of the ongoing growth of core inflation in the eurozone.
The sharply changed fundamental picture for the EUR/USD pair allowed buyers to regain lost positions: within two months, the price rose by more than 500 points. The pair returned to the 10th figure area.
However, traders have practically fallen into a stupor at this stage: both buyers and sellers of EUR/USD. Since mid-April, the pair has been circling the 9–10 figures, not leaving the range of 1.0960–1.1070. The May meetings of the Fed and the ECB also failed to break the deadlock: the central banks raised rates by 25 points but at the same time indicated that the further prospects for monetary policy tightening would depend on the dynamics of inflation growth.
All attention is on inflation
Given that the current week will be “under the sign of American inflation,” it is not surprising that EUR/USD traders are reluctant to open large positions – neither southward nor northward. Market participants are forced to trade in a narrow price corridor as strong or weak inflation reports can redraw the fundamental picture for the pair. Suppose all planned releases (Consumer Price Index, Producer Price Index, Import Price Index) come out at least at the level of forecasts (not to mention the “red zone”). In that case, the dollar will come under significant pressure. In this case, the issue of raising the rate in the next two months will be removed from the agenda. Remember that even strong Nonfarm payrolls, published at the end of last week, did not help the greenback: according to the CME FedWatch Tool, the probability of a 25-point rate hike in June is only 7%. Accordingly, the market estimates the probability of maintaining the status quo at 93%. According to preliminary forecasts, the key inflation indices should reflect a US inflation slowdown. If the real figures coincide with the forecasted ones, buyers will again try to enter the 11th-figure area, marking the development of a northern trend.
However, if, contrary to forecasts, the reports mentioned above have a “green tint,” bears will surely seize the initiative. In this case, a large-scale correction is likely, with the first target at 1.0910 (the lower line of the Bollinger Bands indicator on the daily chart) and the main target at 1.0820 (the middle line of the Bollinger Bands on the weekly chart coinciding with the Tenkan-sen line).
Conclusions
After almost two months of steady growth, the EUR/USD pair is drifting, reflecting the indecision of both buyers and sellers. Traders are reluctant to open large positions – southward and northward – ahead of the publication of key US inflation growth data. Inflation reports are important in themselves, but in the current circumstances, they can play a decisive role in determining the direction of the EUR/USD price.
Given such a high degree of uncertainty, it can be assumed that soon (before the release of the CPI on Wednesday), the pair will continue to “flatten” – trade in the range of 1.0960 – 1.1070.
The material has been provided by InstaForex Company – www.instaforex.com
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