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EUR/USD. Weekly preview: ECB officials' speeches, side reports and PCE Price Index

Last week, the US currency became the favorite of the foreign exchange market. The dollar index soared from 90.66 to a local peak of 92.33. The indicator updated the two-month high, reflecting the increased interest of traders in the currency. The stars turned out well for the EUR/USD bears: the hawkish results of the June Federal Reserve meeting coincided with the dovish rhetoric of the European Central Bank's representatives. This uncorrelation increased the pressure on the pair, after which the bears updated the 2.5-month price low. At the same time, the bears could/did not manage to surpass the support level of 1.1850 (the upper limit of the Kumo cloud on the weekly chart), closing the trading week at 1.1862. And further prospects for the development of the downward trend will depend on how stable the 1.1850 target is – if the bears do not overcome it "in a rush", traders will massively close short positions, extinguishing the downward momentum. Next, the pair will either drift into a prolonged flat, or demonstrate a correction, the scale of which will depend on the tone of the rhetoric of the ECB representatives and macroeconomic reports.


In the coming week, the main news for the pair will mainly come from Europe. For example, the EUR/USD economic calendar is nearly empty on Monday: only the speech of the head of the ECB, Christine Lagarde, which will take place at the start of the US session, is of interest. She will announce the report to the members of the European Parliament's Committee on Economic and Monetary Affairs. Since the topic of the report is directly related to monetary policy, the market will show special interest in it. Let me remind you that last Thursday, ECB Chief Economist Philip Lane put significant pressure on the euro. He said that in his opinion, "it is still premature to talk about ending emergency bond purchases." Lane also said that the discussion of this issue will take place at the central bank's September meeting. At the same time, he was skeptical about the likelihood of curtailing QE this year. In the context of this rhetoric, Lagarde's position may provoke increased volatility in the pair. As you know, Lagarde belongs to the dovish wing of the ECB, so her speech may put additional pressure on the EUR/USD.

On Tuesday, June 22, traders will focus on the rhetoric of the ECB representatives – in the afternoon, members of the Executive Board of the ECB Philip Lane and Isabel Schnabel will speak. We can assume that they will also put pressure on the single currency. Philip Lane has already voiced his position, and is unlikely to change it, while Schnabel just the week before last said that "Europe has passed a turning point, but still needs the support of the ECB." I believe that next Tuesday she will repeat this thesis. In the United States, secondary statistics will be published on this day – the Fed-Richmond Manufacturing Index and the volume of home sales in the secondary market.

On Wednesday, June 23, the main stream of macroeconomic reports will come from Europe. Preliminary estimates of the PMI indices of Germany, France, Italy and the entire eurozone – in the manufacturing sector and in the services sector - will be published during the European session. According to analysts, almost all components of the release will show a slowdown, reflecting the decline in the optimistic mood of entrepreneurs regarding the prospects for the recovery of the European economy. If the indicators come out in the red zone, not reaching the forecast values, the euro will be under pressure again. The index of business activity in the US manufacturing sector will be published during the US session on Wednesday. Negative dynamics are also expected here. But given the hawkish expectations of investors, the market can ignore this fact.

On Thursday, June 23, the IFO indices will be published during the European session. Let me remind you that in May, the German indicator of economic expectations exceeded the 100-point mark for the first time since February 2018. The indicator of business environment conditions similarly pleased EUR/USD bulls, being at the level of 92 points (the best result since April 2019). In June, the indicators may support the euro again – according to preliminary forecasts, both components of the release will come out above the hundredth mark. In addition, the weekly growth rate of initial applications for unemployment benefits will be published in America on this day as well. The indicator has consistently declined for five consecutive weeks, but last week showed a slight increase. However, according to forecasts, this week the indicator will continue its downward trend, providing background support for the greenback. Also, the final estimate of US GDP growth in the first quarter will be published on Thursday, but if the figures coincide with previous estimates (which is most likely), then traders will ignore this release.

But on Friday, June 25, traders of the EUR/USD pair will react to the main index of personal consumption expenditures (Core PCE Price Index), which measures the core level of spending and indirectly affects the dynamics of inflation in the United States. It is believed that this indicator is monitored by the members of the central bank "especially, carefully". According to forecasts, the index will show a strong result - in monthly terms, it will rise to 0.8% (a multi-month high), in annual terms - it will jump to 3.4% (a multi-year high). This release may have a significant impact on the greenback's position, especially after the resonant inflationary release, which reflected a jump in the consumer price index.

In general, the future prospects of the EUR/USD pair largely depend on the rhetoric of the ECB representatives. Following the results of the June meeting, the Fed tightened its rhetoric, providing significant support to the dollar. And although the US central bank maintained the status quo and did not even discuss the issue of curtailing QE, the hawkish notes of the accompanying statement allowed dollar bulls to organize a large-scale rally. The spot forecast, which allows for a double rate hike in 2023, overshadowed all other fundamental factors. At the same time, most representatives of the ECB continue to voice dovish rhetoric. If the ECB members (especially Lagarde) do not tighten their rhetoric in the coming week (which is unlikely), the EUR/USD pair will not only surpass the support level of 1.1850 (the upper limit of the Kumo cloud on the weekly chart), but also test the main price barrier of 1.1770 (the lower line of the Bollinger Bands indicator on the same timeframe). But it is advisable to go into short positions only when the bears manage to settle below the 1.1850 mark, since traders can "feel" the price low in this area.

The material has been provided by InstaForex Company -