EUR/USD: Fed will run the show this week

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At the end of last week, the greenback rose sharply in price against the background of the release of a strong report on the US labor market in June. The USD index rose above the level of 97 points, reaching its highest levels in the last three weeks. At the same time, the EUR/USD pair slipped to the area of 1.1220.

This week, traders will focus on the speech of US Federal Reserve Chairman Jerome Powell in Congress, as well as the publication of the minutes from the June meetings of the Fed and the ECB.

The main idea in the market is still the question of the further monetary course of the two leading central banks.

At the end of the last FOMC meeting, J. Powell said that interest rates would remain unchanged for the time being. At the same time, he hinted that if foreign trade conflicts continue to restrain economic growth in the country, the regulator will have to soften its monetary policy.

Prior to the publication last Friday of a strong report on the US labor market, which exceeded forecasts for the number of new jobs (NFP), many economists believed that at the July meeting the Fed would reduce rates by at least 25 basis points.

However, NFP grew more than 3 times. It turns out that the US economy is not so bad. The question is, why then should the US central bank pursue a policy of easing and giving away cheap money?

Investors will try to hear the answer to this question from the Fed Chairman in the coming days, as well as see the minutes of the June FOMC meeting, which will be published this Wednesday.

The June reports on producer and consumer prices in the US, which will be released this week, can also help clarify the situation for investors. If the price pressure continues to decline, then expectations about the rate cuts by the Fed will increase. It is possible that the regulator may implement a one-time reduction in rates without plans to further mitigate the policy. However, we will not know what decision the FOMC members will take until the next meeting, which will be held in late July.

"Convincing labor market data may not be enough to force the Fed to change its mind about cutting rates after the meeting in July. However, recent employment data may allow the regulator to take a short pause. Some members of the FOMC may vote at the next meeting for keeping rates unchanged," said Wells Fargo currency strategist Brandon McKenna.

On Thursday, the ECB will release its report from the June monetary policy meeting. From the European regulator, the market is waiting for additional measures to stimulate the EU economy.

It is assumed that the easing of the monetary policy of the Fed may weaken the dollar, similar actions by the ECB - pull down the euro. It is unclear as to which direction the scales will swing to.

Now the greenback continues to strengthen, including in relation to the euro, even despite a possible softening of the Fed's position, since the US economy still looks better than the competition. In addition, there are no threats to the US economy in the short term, and the White House's trade policy, despite criticism, has made investments in the country more attractive than investment abroad.

The material has been provided by InstaForex Company - www.instaforex.com