At the start of the new trading week, the euro-dollar pair is again trying to develop a corrective growth. EUR/USD bears could not gain a foothold within the 3rd figure, so they quickly lost control over the fourth price level. The sellers of the pair have a rather difficult task: they need to hold their positions in the area of 5-year price lows, at 1.0360–1.0340. Moreover, for the development of the downward trend, it is necessary to go to the base of the 3rd figure, that is, to break through to 20-year lows.
The task is really difficult, which is why the EUR/USD bears failed to realize it last week, even despite the Fed's 75-point interest rate hike. The unexpected decision by the Fed allowed traders to decline to around 1.0360, but further prospects were in doubt. Market participants failed to approach the key support level of 1.0340 (a five-year low), not to mention overcoming this price milestone. As a result, the sellers fixed their profits, as there was a high risk of "catching the price bottom." The buyers, as expected, seized the initiative by organizing a corrective counteroffensive. To strengthen their positions, they need to break through the resistance level of 1.0570 (the lower boundary of the Kumo cloud on the D1 timeframe, coinciding with the Tenkan-sen and Kijun-sen lines).
In other words, for the development of the downward trend, sellers of EUR/USD should at least go to the base of the 4th figure, and at most gain a foothold within the third figure. Buyers, in turn, should identify themselves at the borders of the 6th figure in order to qualify for more ambitious targets (among which is a return to the price range of 1.0640–1.0760).
The pair may soon fluctuate within a wide-range flat (in the range of 1.0450–1.0550), on the eve of a kind of "marathon" by Jerome Powell. On Wednesday, the head of the Federal Reserve will begin his two-day speech in the US Congress. First, he will present a semi-annual report on monetary policy to the House Committee on Financial Services, and on Thursday to the Committee on Banking, Housing, and Urban Affairs. Given the fundamental importance of this event, neither the bulls nor the EUR/USD bears are likely to tempt fate by opening large positions in favor or against the greenback.
Following the results of the June meeting of the Fed, Powell expressed his readiness to increase the interest rate at an active pace: he said that at the next meeting in July, the Fed could resort to either a 50-point or 75-point increase. At the same time, the head of the US regulator made it clear that the parameters of monetary policy will be tightened, even despite the projected decline in the main economic indicators.
Note that Federal Reserve Bank of Kansas City President Esther George opposed the rate increase by 75 points (having the right to vote in the Committee, she insisted on a 50-point increase). Commenting on her position, she stated that the rapid increase in the interest rate should be viewed through the prism of "increasing political uncertainty with the simultaneous beginning of exhaustion of the balance sheet." In other words, she opposed "shock therapy," which certainly has its downside.
In general, it is now safe to say that the Fed will increase the rate at each subsequent meeting—at least until the end of this year. The only question is how fast the central bank will tighten the parameters of monetary policy. Powell can answer this question during his speech in Congress. That is why this event is key this week. According to CME Group FedWatch, the markets currently estimate the probability of a rate hike by 75 basis points at the July meeting with a probability of 88%. In this case, Powell's task is not to disappoint dollar bulls. If he allows the option of a 75-point step in September, then the dollar will receive additional support, and very significant. In this case, EUR/USD sellers will be able to approach five-year price lows again.
Macroeconomic reports this week are of secondary importance. Sales figures on the secondary housing market in the United States will be published tomorrow, PMI indices will be published on Thursday, and the consumer expectations index from the University of Michigan will be published on Friday. You should also pay attention to the Monthly report of the ECB (published on Thursday) and the speeches of representatives of the European Central Bank (in particular, Lagarde will announce her position on Tuesday). However, it is unlikely that the European regulator will tighten its position and retreat on the planned trajectory of rate hikes (0.25% in July, 0.25% in September).
Thus, Powell may provoke increased volatility in the EUR/USD pair this week. Judging by his rhetoric at a recent press conference, as well as the "politicization" of the issue of inflationary growth in the United States, it can be assumed that the head of the US regulator will provide significant support to the greenback with his hawkish attitude. Therefore, it is advisable to use any corrective bursts of EUR/USD to open short positions. The nearest downward targets are 1.0500 and 1.0450.
