The data published today on the growth of European inflation did not impress traders of the EUR/USD pair: the release did not surprise with a breakthrough growth, but reflected a slight slowdown in inflationary dynamics. The market was ready for such a result: first, all the components of the release came out in accordance with the forecast. The general consumer price index was at 1.9% in June (after reaching a two-percent level in May), and the core index, excluding energy and food prices, fell to 0.9% after a one-percent increase in May. Most experts foresaw exactly this result, so traders actually ignored the release itself. In addition, the data published yesterday on the growth of inflation in Germany reflected a similar trend – both in annual and monthly terms, the German CPI slowed down slightly (at the same time, on an annual basis, the index still remained above the two percent target).
In other words, European inflation did not become a catalyst for increased volatility for the pair: EUR/USD traders "circled" around the 1.1900 mark, being almost in the middle of the flat corridor of 1.1850-1.1970 (the lower line of the BB indicator on the four – hour chart is the lower border of the Kumo cloud on the daily chart).
However, at the start of the US session, the pair's bears again tried to develop another downward momentum "inside" the price range. The reason for this was a report from ADP, which reflected a significant increase in the number of employees. According to experts of this agency, in June, almost 700,000 jobs were created in the US private sector. This result turned out to be much higher than the forecast level-analysts expected to see this indicator at the 550,000 mark. This release is traditionally a kind of "petrel" on the eve of Friday's non-farm events. If the official figures repeat the trajectory of the ADP, the dollar will receive significant support.
The consensus forecast regarding the official data suggests that the labor market will show a strong result in June. According to experts, this month, 750,000 jobs were created in the non-agricultural sector in the States (in May, this indicator came out at the level of 559,000, in April-at the level of 280,000). But the unemployment rate should decrease – to the level of 5.6%. And we are talking about the average forecast, while the difference between almost 70 expert estimates is very large – the forecast range is from 400,000 to 1 million 100,000. Thus, even taking into account today's ADP report, a certain intrigue regarding Friday's data remains. In my opinion, dollar bulls will now expect to exceed the forecast values, taking into account the dynamics of unofficial data. At the same time, it is worth remembering that the ADP report does not always correlate with nonfarm, thereby rendering dollar bulls a "disservice".
Actually, this is why market participants do not dare to "invest" in the dollar, opening large positions in favor of the greenback. Despite the downward pressure, traders continue to trade at the lower limit of the range of 1.1850-1.1970, not daring to storm the key support level.
It should be noted here that at the moment any more or less significant release is considered through the prism of the prospects for tightening monetary policy – either from the Federal Reserve or from the European Central Bank. Most economists believe that the Fed can start curtailing QE faster than the European Central Bank. They argue their position by the fact that there is much less inflationary pressure in the eurozone (and today's publication confirms this), so the European central bank "can afford" to maintain an accommodative policy much longer than the Fed, which significantly tightened its rhetoric at the last meeting.
This factor keeps the US currency afloat. At the same time, dollar bulls are unable to organize a dollar rally, even despite the above-mentioned uncorrelation. The head of the Fed, who voiced quite dovish remarks in Congress, acts as a kind of stop-tap. Dollar bulls need additional arguments of a fundamental nature in order for the dollar to become the favorite of the foreign exchange market again. That is why all the market's attention is focused on nonfarm, the publication of which is expected the day after tomorrow. And that is why the pair's traders are now being cautious, not daring to take revolutionary actions in the context of overcoming price barriers.
From the point of view of technology, the situation is as follows. The EUR/USD pair on the 4-hour chart is located near the support level of 1.1850 (the lower line of the Bollinger Bands on this timeframe). Last week (following the results of the June Fed meeting), the bears already tried to overcome this target, but to no avail – the pair overcame 300 points (from the level of 1.2150), but stopped at the level of 1.1850, thereby marking the price low. Given the "approaching" nonfarm, we can assume that sellers will not risk going below the target of 1.1850 again. Therefore, when the southern momentum fades in the area of this level (or even slightly below it), you can open long positions with the first target at 1.1900.
