The euro-dollar pair once again tried to settle in the area of the 4th figure. However, this attempt failed again: as soon as the EUR/USD bears cross the 1.0500 support level, the downward momentum begins to fade away. The bulls seized the initiative, as they return the pair to its previous positions, by the middle of the 5th price level. However, the upward momentum is also fading here: traders do not dare to go higher ahead of the release of data on the growth of US inflation (the key macroeconomic report of the week will be published on Wednesday).
It can be stated that the pair is stuck in a wide-range flat, the lower limit of which is at 1.0450, and the upper one is at the borders of the 6th figure. Over the past week, bulls and bears have been "pulling the blanket over themselves", but neither side has been successful.
On the one hand, such a positional struggle allows you to open short positions at the upper border of the price range, and, accordingly, long positions at the bottom point. Looking back at the price dynamics of the last week, we can conclude that the pair is steadily rebounding from the boundaries, demonstrating a wave-like movement. But, on the other hand, this uncomplicated tactic is very risky, since sooner or later traders will leave the formed range and head either to the bottom of the 4th figure, or settle above 1.0600 with subsequent growth to the target of 1.0700.
In my opinion, traders will determine the vector of price movement literally the day after tomorrow, when the report on the growth of the consumer price index in the US is published. Given the recent messages voiced by Federal Reserve Chairman Jerome Powell, the importance of this release can hardly be overestimated.
The fact is that the Fed, despite all its hawkishness, has not yet decided on the pace of tightening monetary policy. Obviously, the central bank will raise interest rates at each meeting at least until the end of this year. But how much is an open question. The Open Market Committee has different thoughts on this matter.
James Bullard, for example, on the eve of the May meeting, offered to "cut off the shoulder" and raise the rate immediately by 75 points. The rest of his colleagues did not support him, but they did not categorically deny this scenario in the future either. In particular, Powell said that "this issue is not actively discussed by the members of the Committee." A fairly vague comment that allows one to interpret the Fed's position quite freely.
And yet, most representatives of the Fed are inclined to believe that in the future the central bank will use a 50-point or 25-point step. The degree of "aggressiveness" will determine inflation, which, according to Powell, will soon reach (or has already reached) its peak. In particular, the head of the Fed pointed to the core PCE index - this inflationary indicator interrupted its multi-month growth and retreated from its peak value in April (but remained at the level of multi-year highs). According to preliminary forecasts, the consumer price index will show a similar trend. The overall CPI in annual terms should come out at around 8.1%, while the March result was at the level of 8.5%. On the one hand, an 8% increase in inflation will in any case serve as a pretext for a 50-point rate hike in June. On the other hand, the first signs of a slowdown in the CPI will suggest that further steps by the regulator will not be so aggressive.
Thus, the April inflation will de facto tip the scales in one direction or another. If the report surprises traders with a "green color", the dollar bulls will organize another rally. Otherwise, the greenback will sink across the market, allowing EUR/USD bulls to settle above 1.0600.
Given the current intrigue, before the release of the key report of the week, it is advisable to take a wait-and-see position on the EUR/USD pair. Or choose a more risky option for yourself - "selling from above, buying from below" within the price range of 1.0450-1.0600.
Notably, traders virtually ignored the hawkish comments of ECB Governing Board member Olli Rehn, who advocated a rate hike at the July meeting. Earlier, a similar idea was also voiced by the head of the Bank of Latvia, Martins Kazaks. However, the European Central Bank is by no means monolithic on this issue - for example, other members of the ECB who spoke over the past week (Fabio Panetta, Luis De Guindos, Philippe Lane) showed hesitation, urging them not to rush to take appropriate decisions.
All this suggests that the euro is not able to turn the tide on the pair on its own: a corrective rollback is possible only if the US currency weakens, which, in turn, will react to inflationary trends.
