EUR/USD. Preview of the week: Powell, inflation and the Fed minutes

The euro-dollar pair started the week in a flat: during the Asian session on Monday, the pair moved minimally from Friday's closing level, but generally remained at the bottom of the 12th figure. The downward impulse of Friday has faded, and now the bears of the pair need a new informational reason to further reduce and conquer the 11th figure. There will be plenty of such reasons this week. Consider the most important events of the upcoming trading days.

Monday is nearly empty for the pair. We learn the level of industrial production in Germany during the European session. This indicator has been in the negative area for the last two months and is consistently declining (March -0.9%, April -1.8%). The May indicator should also show a negative trend (a further decline is expected to -3.2%) - this fact will put additional pressure on the euro. During the US session, the volume of consumer lending is the only topic of interest: this indicator shows the "net" dynamics of changes in the volume of loans issued to Americans. The negative dynamics of the indicator is expected, although today we will find out the data for May, so market reaction will be minimal.

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Significant macroeconomic reports are also not expected on Tuesday. Although minor releases may be of interest to investors. In particular, we are talking about the release of data on labor turnover in the United States from the Bureau of Labor Statistics. This indicator measures the level of open vacancies among the private sector at the end of the reporting month, adjusted for seasonal factors. Growth reflects an improvement in the labor market situation in the country, showing a higher demand for workers. However, this indicator will indirectly affect the euro-dollar pair, especially after the release of Friday's Nonfarms. Three representatives of the Federal Reserve are also set to speak on Tuesday: James Bullard ("dovish", has the right to vote this year), Randal Quarles (Fed Vice Chairman for Supervision, with the right to vote, supporter of the wait-and-see stance) and Raphael Bostic (centrist, without the right to vote this year).

But the most interesting events will begin to unfold on Wednesday. On this day, the Fed chairman will begin his two-day speech in the US Congress. Jerome Powell will first present this report in the Financial Services Committee of the House of Representatives, then in the Banking, Housing and Urban Affairs Committee. Last Friday, the market learned the contents of this report. He has a rather dovish character and largely repeats the theses of the June Fed meeting. The essence of the semi-annual report boils down to the fact that the Fed is ready to soften the parameters of monetary policy, in response to weak inflation, a slowdown in the export sphere and overall GDP. But the thing is that this document was prepared before the release of data on the US labor market. As is known, the June Nonfarms demonstrated the growth of the main indicators, offsetting the devastating May figures. Following the Friday release, the market began to doubt that the Fed is implementing its intentions regarding the interest rate cut - at least in the near future. Against the background of such assumptions, the dollar has risen in price against a basket of major currencies, however, the dovish Fed report cooled the fervor of dollar bulls.

Now the fate of the EUR/USD's downward trend is in Powell's hands: if he confirms the iUS regulator's intentions to lower the rate despite the growth of Nonfarms, the dollar will return to previous positions, showing weakness. Otherwise, the greenback will continue its rally, including paired with the euro. The second scenario is fraught with retaliatory measures by the White House (Trump may initiate an intervention in foreign currency), but the traders' initial reaction to Powell's hawkish tone will still be in favor of the dollar. In the context of the EUR/USD pair, this means that the price, firstly, will be consolidated in the 11th figure, and secondly, it will reach the bottom for further assault on the 10th level. Thus, Powell's speech is a key event of the current week, unless the US president moves ahead with threats to start a currency war. In this case, the dollar will plummet in the entire market - regardless of what position the head of the Fed will announce.

In addition, the minutes of the Fed's last meeting will be published on Wednesday. Considering Powell's speech and the succession of releases, this document is unlikely to affect the dynamics of the pair. The interest is only in the alignment of forces in the Fed's camp.

But a really important release will be published on Thursday. We are talking about the publication of data on the growth of American inflation. The overall consumer price index should show a negative trend, dropping to 1.6% in annual terms and down to zero - on a monthly basis. Core inflation, excluding prices for food and energy, can demonstrate low growth in monthly terms (from 0.1% to 0.2%) and remain at the same level (2.0%) in annual terms. If the real numbers are below fairly weak forecast values, the dollar may again fall under the wave of sales. Weak inflation will affect the Fed members, who are forced to reckon not only with the dynamics of the labor market, but also with the inflation dynamics. Therefore, the disappointing CPI report will in any case put downward pressure on the US currency.

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On Friday, the market will be trading under the impression of previous events. However, the economic calendar of Friday is not completely empty: the producer price index will be published in the United States, which is an early signal of changes in inflation trends. Over the past two months, it has consistently dropped and a decline is also expected in June, both in monthly and annual terms. If the CPI also comes out in the red zone, this fact will put a lot of pressure on the greenback.

In general, the euro-dollar pair will follow the US currency this week. Important fundamental events will determine the fate of the Fed's interest rate, and depending on the regulator's intentions, the dollar will choose the vector of its movement - not only paired with the euro, but throughout the market.

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