US trading platforms were closed on Tuesday for the 4th of July holiday. In turn, the EUR/USD pair continues to drift on the border of the 8th and 9th figures, which shows how indecisive both bulls and the bears are. Traders need a good reason to break out of the price range of 1.0850-1.0930, within which the pair has been trading for the second week in a row. On Monday, buyers made a corresponding attempt, reacting to the release of data on the growth of the ISM manufacturing index. But in the end, they failed to consolidate above the target of 1.0930, afterwards the sellers took the initiative. Now traders are looking forward to the upcoming info triggers capable of provoking strong volatility among dollar pairs. We are talking about the minutes of the June meeting (this will be released on Wednesday) and Nonfarm payrolls (on Friday). Market participants will also focus on the comments of the Federal Reserve officials and the ADP agency report, which is a harbinger of the official release.
But let's return to Monday's events. The economic activity in the US manufacturing sector continued to contract again. Instead of rising to 47.2, the ISM Manufacturing PMI dropped to 46. A level not seen since early in the coronavirus pandemic (May 2020). This is a very alarming sign for dollar bulls. Recall that at the end of June, the dollar received unexpected support from U.S. data: according to the final estimate, the country's GDP increased in the first quarter not by 1.3%, but by 2%. This reinforced hawkish expectations regarding the Fed's actions at the July meeting. After the strong US data, the probability of an FOMC July rate hike is almost 90% according to the CME FedWatch Tool. However, the disappointing ISM manufacturing index weakened this probability to 85%, but overall it did not destroy the existing forecast construct. The market is almost certain that the Fed will raise the rate in July and at the same time is almost certain that the Bank will keep rates unchanged at the next meeting (a 65% probability of a "September pause" ).
Given this disposition, the Nonfarm payrolls, rather than the Fed's minutes, will likely play a key role in determining the medium-term prospects for the greenback. According to the dot plot updated in June, most members of the central bank assume two more interest rate hikes by the end of this year. Fed Chair Jerome Powell in one of his latest speeches also confirmed the hawkish stance of the "majority of Committee members", who stated the need for "at least two" rate hikes within this year.
The minutes of the June meeting may only reflect the above theses, which have already been repeatedly voiced and played out by the market. If traders don't receive new information (which is highly likely), they will simply ignore this document.
The June Nonfarm payrolls report is capable of provoking sharp volatility for the EUR/USD pair, especially if it is in "the red", and particularly if the inflation indicator disappoints. According to preliminary forecasts, the indicator of average hourly earnings in June should come out at 4.2% y/y, reflecting a slowdown (in May it was at 4.3%). Although this slowdown will be minimal, the estimated result (4.2%) would be the weakest since September 2021. If this component of the report is in the "red", the greenback will come under pressure, even if all other indicators are at the forecasted level. The market will still be confident in a July interest rate hike, but doubts about further steps by the Fed will allow EUR/USD buyers to retest the upper range of 1.0850 - 1.0930.
Comments by Fed officials could also stir market reaction. For example, John Williams, the head of the Federal Reserve Bank of New York, is expected to give comments on Wednesday. He has a permanent voting right on the Committee (by position) and is also one of the most influential officials in the Fed. The following day (Thursday), his colleague Lorie Logan, the head of the Federal Reserve Bank of Dallas who also has a vote, will express her position.
The aforementioned factors could either strengthen or weaken the USD. The EUR/USD pair will accordingly determine the vector of its movement in the medium term: either towards the 10th figure or around the 7th figure. But for now, EUR/USD traders are forced to trade in a fairly narrow price range, thereby, trapped in a flat.
Technical analysis shows the same thing. On the daily chart, the pair is still between the middle and upper lines of the Bollinger Bands indicator and simultaneously between the Kijun-sen and Tenkan-sen lines. You can consider long positions once the bulls overcome the upper band of the 1.0850 - 1.0930 price range. In this case, the Ichimoku indicator will form a bullish "Parade of Lines" signal on the 1D chart, thereby opening the path to the next resistance level of 1.1040 (the upper line of Bollinger Bands on the same chart). In turn, you can consider short positions once the bears manage to cross the lower band of the Kumo cloud (1.0820) - in this case, the "Parade of Lines" will be bearish.
