The euro-dollar pair continues to trade in a flat, narrowing the price range from 1.0450-1.0600 (which was observed last week) to 1.0520-1.0590. Apparently, market participants are frozen in anticipation of tomorrow's release on the growth of US inflation. Traders do not risk opening large positions - neither in favor of the dollar, nor against it. The European currency, in turn, is not able to move the pair up, even in the context of corrective rollbacks. For example, the German ZEW indices were published today, which turned out to be not as deplorable as experts expected. However, the euro reacted to this fact rather phlegmatically: the EUR/USD pair rose by several tens of points and stalled near the upper border of the above range.
Bears are also not very active, as the greenback has temporarily retreated from its highs. Just yesterday, the US dollar index was testing the 104th figure, but today it is already showing a downward trend - weak, sluggish, but still downward. After yesterday's "big sell-off in stocks" there is some stabilization of risk sentiment. The dollar came under slight pressure, allowing opponents in the main pairs of the "major group" to develop a corrective counteroffensive. In the case of the EUR/USD pair, this offensive was reflected in the price growth towards the borders of the 6th figure. But even here, at a relatively low price height, bulls could not hold their positions. Having trampled on the spot, the pair began to slowly slide back to their previous positions.
There is no doubt that the dollar retains the potential for its further growth, especially when paired with the European currency. But the dollar bulls need fuel - a powerful informational occasion that will allow EUR/USD bears not only to settle within the 4th figure, but also turn their eyes to the area of 20-year price lows (1.0350 target).
Tomorrow's report on data on the growth of the consumer price index in the US may become such an informational occasion. As a result of the May meeting of the US central bank, Federal Reserve Chairman Jerome Powell actually "tied" the rate of interest rate hike to the dynamics of inflationary growth. In his opinion, US inflation will "level off" in the second half of the year, so it is difficult for him to talk about the pace of tightening monetary policy today. In particular, the head of the Fed pointed to the core PCE index, which really slowed down its growth, interrupting the multi-month upward trend. If the CPI follows the lead of the PCE, then the likelihood of the Fed "increasing aggressiveness" will decrease, which will put pressure on the greenback. Otherwise, the dollar will again show its character, putting significant pressure on the EUR/USD pair. It should be noted here that according to preliminary forecasts, the CPI will slow down its growth, thus confirming the assumptions of Powell. Of course, the Fed will continue to raise the interest rate in any case, but now it is the pace of this process that is on the agenda. Therefore, if April inflation surprises traders tomorrow with its "green color", exceeding forecast levels, the greenback will again be on horseback.
Actually, for this reason, the EUR/USD pair actually fell into a lethargic sleep today, waiting for the key release of the week.
The European currency, in turn, is not able to influence the situation in any way. The ZEW indices published today, on the one hand, came out in the green zone, but on the other hand, reflected the continuing pessimism among German (and in general European) entrepreneurs. In particular, the index of business sentiment in Germany in May came out at -34 points, while a decline to -45 points was forecast. The indicator has been in the negative area for the third consecutive month. Therefore, there is no need to talk about any breakthrough here - the release turned out to be somewhat better than expected, but in general the situation remains rather gloomy. Coronavirus restrictions in China are contributing to the worsening of the economic situation in Germany, adding to the already gloomy picture caused by the energy crisis in Europe, according to experts at the ZEW Institute.
Does not receive euro support from the European Central Bank. Most analysts predict an increase in ECB interest rates in the next six months - in July or September. However, representatives of the ECB are in no hurry to resort to hawkish statements (with the exception of some central bank officials), preferring to voice cautious wording and rather vague time frames. In particular, the chief economist of the central bank urged to evaluate the macroeconomic indicators of the second quarter before talking about the timing of the increase in interest rates.
In other words, the current fundamental background contributes to a further decrease in the EUR/USD pair, but the bears need an appropriate informational impulse for this. Bears are no longer able to move "by inertia", on hawkish expectations alone, as the pair is trading in the area of 5-year lows, and 20-year lows are looming ahead. To achieve such ambitious goals, traders need an appropriate information driver. A strong inflation report, in my opinion, is able to cope with this task, at least in the context of a repeated attempt to consolidate in the area of the 4th figure. However, a mirror scenario is not ruled out here, in case of which EUR/USD bulls will be able to settle above 1.0600. Therefore, before the release of tomorrow's data on US inflation for the pair, it is advisable to take a wait-and-see attitude.
