The EUR/USD pair continues to trade flat, refusing to leave the 1.0850-1.0930 range. Traders are working with the levels, describing a wave-like trajectory. On Monday, EUR/USD buyers tested the upper band of the price range, but could not maintain their positions. On Wednesday, sellers approached the lower band (the low was marked at 1.0865), where they happily locked in profit and handed the baton back to the buyers.
As a result, traders remained on "neutral territory", at the border of the 8 and 9 figures. Sellers and buyers take turns with the former trying to overcome the level of 1.0930, while the latter relentlessly tries to approach the lower band of the aforementioned price range. But in fact, the pair consolidated in an 80-point range, reflexively responding to the current news flow.
After the loud events of the last two weeks, the pair rises and falls without any enthusiasm or "spark." Market participants are forced to "languish in anticipation," as the fate of the July meetings of the Federal Reserve and the European Central Bank is practically predestined, and the intrigue regarding the "post-July period" remains. For example, the latest euro area inflation report has weakened investors' hawkish expectations regarding the further actions of the European Central Bank. But at the same time, certain ECB officials (including the head of the Bundesbank) still advocate for maintaining an aggressive stance, stating that interest rates "should rise further." Meanwhile, the latest survey of consumer expectations regarding inflation, which is conducted monthly by the ECB, showed that inflation expectations among EU consumers fell even more in May. This weighed on the single currency on Wednesday.
The US currency also cannot determine the vector of its movement. Last week, the US dollar index showed increased volatility, rising to the boundaries of the 103 figure and falling to the base of the 102. This week, the index is fluctuating in a narrower range, but with a similar result: upward movements are replaced by downward ones and again everything in a circle.
The greenback is forced to respond to a contradictory fundamental background. On one side of the scale are Fed Chair Jerome Powell's hawkish stance, stronger growth of the American economy in the first quarter of this year (US GDP growth data were unexpectedly revised from 1.3% to 2.0%), and an increase in risk-averse sentiments amid weak macroeconomic reports from China (which we will discuss a little below).
On the other side of the scale are the disastrous ISM manufacturing index (in June, the indicator updated a two-year low, falling to 46.0) and the downward dynamics of the core PCE index. The most important inflation indicator for the Fed came out at 4.6%, whereas according to the forecasts of most experts, the May index should have remained at the April level, i.e., at 4.7%. And although in this case one cannot speak of a slowdown in inflation (the indicator is still at a fairly high level), the "red hue" of the release put pressure on the greenback.
In other words, the existing fundamental background consists of a peculiar system of checks and balances. Some fundamental factors do not allow bulls to approach the 10 figure, others do not allow bears to fall to the base of the 8. Therefore, traders are forced to trade within a price range, responding to the current information flow.
For example, on Wednesday, the dollar gained support due to the increase in risk-averse sentiments in the market. China's latest economic report was a disappointment, intensifying traders' concerns about the slowdown of the world's largest economy. In particular, the PMI for the manufacturing sector in June remained in contraction territory, i.e., below the key 50 mark. And although in fact the indicator has slightly risen (by 0.2 points to 49.0), it still remained "below the waterline." This situation has been observed for the third month in a row. In turn, activity in China's service sector slowed down to a five-month low in June due to weakening demand (the indicator dropped to 53.9 points).
This news background allowed the dollar to strengthen its positions, but the EUR/USD pair remained within the aforementioned price range. The market is waiting for a more powerful informational impulse. Such an impulse could be the US labor market report on Friday. If the Non-Farm Payrolls deviates from forecasts (especially in terms of the wage component), EUR/USD traders will try to leave the price range.
Until then, uncertainty will persist in the market in the next few days, which will prevent both bulls and bears from fully expressing their character. All other macroeconomic reports will have limited influence on the pair.
You should only consider long positions once the bulls surpass the upper limit of the 1.0850–1.0930 price range. In this case, the Ichimoku indicator will form a bullish "Parade of Lines" signal on the daily chart, paving the way to the next resistance level of 1.1040 (the upper Bollinger Bands line on the same timeframe). In turn, you can sell once the price overcomes the lower boundary of the Kumo cloud (1.0820).
