Over the past two weeks, the euro-dollar pair has been trading within a wide price range, the boundaries of which are in the area of 1.0120-1.0280 marks. Both bulls and bears tried to leave this range, but each time they returned. The EUR/USD bulls were not helped by the "Taiwan crisis", which did not develop into a military conflict between the army of China and Taiwan, while the bears were not helped by the Nonfarm data, which ended up in the green zone. The market reacted appropriately to key fundamental events, but de facto the EUR/USD pair was treading water. Indeed, in order to develop the downward trend, bears need to settle below 1.0100 in order to again claim the parity zone. Bulls, in turn, need to settle within the 3rd figure in order to show their ambitions in the context of the development of a large-scale correction.
It is likely that the key releases of the upcoming trading week will be able to "push" the pair out of the above range. The only question is up or down. In general, in my opinion, there are certain prerequisites for the resumption of the downward trend. The NonFarm Payrolls report released last Friday suggested that the Federal Reserve would raise interest rates again by 75 basis points in September. The impressive increase in the number of employed in July (528,000 against an increase forecast of 250,000) amid falling unemployment (to 3.5%) and an increase in hourly wages (5.2%) opened a discussion about the possible outcome of the September meeting of the Fed. Some experts (in particular, economists at Commerzbank) have already expressed confidence that members of the US central bank will decide next month on a 75-point increase in the rate.
Let me remind you that after the release of the latest data on US GDP growth, the likelihood of such a hawkish scenario has decreased: the US economy has been demonstrating negative dynamics for the second consecutive quarter, indicating a technical recession. However, the July data in the US labor market updated the issue of a 75-point increase in September again.
As a result of the July meeting, Fed Chairman Jerome Powell said that the further pace of monetary tightening will be determined by incoming data, primarily in the field of the labor market and inflation. At the same time, he directly mentioned that before the September meeting, the central bank will be able to evaluate two reports on employment. According to Powell, "these reports will help determine whether the Fed will have to continue to pursue an aggressive policy." As you can see, the first "test" turned out to be in favor of the 75-point scenario: almost all components of the July Nonfarms came out in the green zone.
Next week there will be another "test" - now in the inflationary area. So, in the coming days, several inflation reports will be published in the US at once, which will have a strong influence on the behavior of the EUR/USD pair.
The most important of these is the report on data on the growth of the consumer price index (which will be released on Wednesday, August 10). According to preliminary forecasts, the overall CPI will slow down in July and the core index will continue to grow. Thus, according to most experts, the overall consumer price index will drop to 8.7% after a record rise to 9.1%. However, if the indicator comes out at the forecast level, the dollar will remain afloat, even despite the first signs of a slowdown.
However, the market will focus on the core index, excluding food and energy prices. Growth is expected here again, both on an annual and monthly basis. In particular, in annual terms, the core CPI should reach 6.1%. Such a result will suit the dollar bulls. After all, over the past months, the indicator has been consistently declining, reflecting the slowdown in the underlying index. The renewed growth of this indicator will strengthen the greenback's position throughout the market.
Also, a report on the growth of the producer price index will be published Thursday, August 11. As you know, this indicator can signal a change in inflationary trends. According to most experts, this index will reflect a slowdown in growth. Moreover, both the general index and excluding food and energy prices should show negative dynamics. If, contrary to forecasts, this indicator comes out in the green zone, the dollar will receive significant support, given the pessimistic preliminary estimates.
Another inflationary report is the release of data on the growth of the import price index (Friday, August 12). And although this report is secondary, it can complement the existing fundamental picture. Moreover, analysts also predict negative dynamics in July.
Well, in the end, traders should pay attention to the index of US consumer sentiment from the University of Michigan (Friday, August 12). After a significant decline in June-July, a slight increase in the indicator is expected in August - up to 52.5 points. Even a minimal excess of the forecast level will provide significant support to the greenback.
Thus, the upcoming week will pass for the EUR/USD pair under the sign of US inflation. For the bears of the pair, it is important that the above releases come out at least at the predicted level (not to mention the green zone). This fact will increase confidence that the Fed will decide on another 75-point rate hike at the next meeting. Rising inflation amid strong Nonfarm will strengthen the dollar's position throughout the market, including against the euro. In this case, it would be reasonable to use any corrective rollback of EUR/USD to open short positions with the targets of 1.0150 (with a rollback to the area of the 2nd figure), 1.0100 and 1.0050.
