EUR/USD. Happy June: The dollar awaits inflation and the Fed meeting

The US dollar opened the trading week with a small, but ubiquitous growth, despite the failed Nonfarms report, which was published on Friday. The meeting of the US finance minister with the chairman of the People's Bank of China gave hope to traders that talks between Beijing and Washington would resume. At the very least, Stephen Mnuchin said that he had a "constructive conversation" with Yi Gang, during which they had a discussion on trade issues. This precedes the meeting of the leaders of the United States and China, which will take place (or rather, should be held) at the G20 summit in Osaka, Japan.


In general, the events of the second half of June can affect the fate of the US currency in the long term. So, on June 19, a key Fed meeting will take place, following which it will become clear whether the regulator intends to reduce the interest rate in the foreseeable future or still "reluctantly" maintain a defense in the form of a wait-and-see position. Following a weak data on the labor market, traders increased the likelihood of monetary policy easing at one of the upcoming Fed meetings to almost 60%. Jerome Powell also did not rule out the implementation of such a scenario, and he made the corresponding statement even before the release of the latest Nonfarms.

The June meeting of the Fed will be held next week, but this week extremely important macroeconomic reports will be published that may affect the position of many members of the regulator. If we talk about a peculiar hierarchy of economic indicators, then the US consumer price index is in the first place, the release of which is scheduled for Wednesday, June 12.

General forecasts do not bode well for the US dollar, which has recently demonstrated a certain vulnerability. Let me remind you that on a monthly basis, the indicator for several months (from November to February) was at the zero level. From February to April, it fluctuated in the range of 0.2% -0.4%, but in May it can again drop to zero: according to some experts, to 0.1%, according to others - to 0%. On an annualized basis, since February there has been a positive dynamics of the CPI: in April it reached a two percent mark. But in May, analysts expect a slowdown to 1.9%. Core inflation for May should remain at the same values: on a monthly basis - 0.1%, in annual terms - 2.1%. Any deviation from this scenario (especially in the direction of a deterioration) will have a strong downward pressure on the dollar. Slowing inflation against the background of a weaker labor market and lower wage growth will increase the likelihood of Fed monetary policy easing at the next meetings.


However, other economic indicators, which will be published this week, may also affect the determination of the members of the US regulator. We are talking, in particular, about the producer price index, which is an early signal of changes in inflation trends. A downward trend is observed here, after reaching an annual peak (0.6%). In May, the negative trend may continue - in the opinion of most analysts, the indicator will fall to zero in monthly terms, and in annual terms - to 1.9%. The inflation indicator is the import price index. Since February, it gradually decreases, and this week it might be in the negative area - the first time in six months (release is scheduled for Thursday). On Friday, we will learn the May data on the volume of retail trade In April, it fell into a negative area, but this week, analysts expect minimal growth - both with regard to auto sales and excluding this category.

Chinese data may also have a definite impact on the EUR/USD pair. In particular, release of data on inflation growth in China is expected on Wednesday (it is expected to grow to 2.7% - the peak value since February last year), and on Friday - the volume of industrial production in China (positive dynamics is also predicted).

By the way, China will increasingly remind traders of themselves over the coming weeks. 28-29, the G-20 summit will take place, the results of which will make it possible to understand whether the United States and China will return to the negotiating table or a trade war will continue. Thus, according to the head of the US Treasury, Trump will decide on new duties on China after meeting with Xi Jinping at the G20 summit. In turn, the Chinese leader, speaking at a forum in St. Petersburg, said that the US is not interested in breaking ties with China, since the countries are "united" by large-scale investments.

Here it is worth remembering that in a year and a half, a presidential election will be held in the United States, following which the Democrats, led by Joe Biden, may come to power. Given this factor, the Chinese may well take a defensive position in the trade conflict, not agreeing to the unfavorable conditions for themselves offered by the Trump deal. In addition, China has recently explicitly hinted that it is ready to strike back not only in the area of tariff policy. In particular, Beijing can use its monopoly position in the market of rare earth metals by restricting or prohibiting the export of China.


However, this week, the US-China relationship will have a background effect on the dynamics of the EUR/USD pair. In the near future, traders will focus on key macroeconomic reports from the United States, which in turn may affect the position of Fed members. In a technical point of view, bulls of the pair need to stay above the mark of 1.1310 (the top line of the Bollinger Bands indicator on the daily chart), thereby demonstrating the priority of an upward direction.

The material has been provided by InstaForex Company -