The EUR/USD pair ended the trading week at 1.0966. For almost two weeks, the pair traded in the 1.0850-1.0930 range, alternately rebounding from the limits of the price range. Friday's breakthrough was impulsive, so it's too early to say that buyers have managed to turn the situation in their favor. In our case, the overall picture will become clear on Monday: either buyers will continue to move up to the boundaries of the 10th-figure, or sellers will again seize the initiative, returning the pair to the confines of the above range.
Overall, the past week was not on the dollar's side, as is eloquently evidenced by the US dollar index, which updated a two-week low on Friday. The index experienced ups and downs during the trading week, but at the end of Friday's trading, market participants still decided that the "glass is half empty", after which the greenback was under a wave of sales.
A significant blow to the positions of the dollar bulls was delivered on Monday when the US ISM manufacturing index was published. This turned out to be a disappointment, as it revealed a contraction. Instead of the predicted growth to the level of 47.2, the index fell to 46.0 - this is the weakest result since May 2020, when the United States was feeling the effects of the coronavirus crisis.
A day after this release - that is, on Wednesday - the minutes of the Fed's June meeting were published, which turned out to be hawkish on one hand, but on the other hand - largely useless. We learned that some Committee members insisted on raising the rate by 25 basis points, although most of their colleagues advocated maintaining the status quo. At the same time, the minutes "explicitly" announced further tightening of monetary policy. The text of the document states that "almost all" meeting participants emphasized that they consider it appropriate to further increase the target rate for federal funds during the current year. Such a hawkish attitude allowed dollar bulls to show their character - the greenback strengthened its positions across the market. But it was only a "moment of glory" for the US currency. The minutes reinforced hawkish expectations regarding the possible outcomes of the July meeting, while further prospects for tightening monetary policy remained rather vague. Therefore, the Fed's minutes turned out to be de facto useless for the greenback.
At the end of the past week, traders focused on labor market data. A small "two-part drama" even played out here. Thus, on Thursday, an unexpectedly strong report from ADP was published, which showed almost half a million increase in the number of people employed in the private sector. The results of unofficial research often correlate with official data, so traders enthusiastically awaited Friday's Non-Farms. But to their disappointment, it was this component of the official report that ended up in the "red": instead of the expected increase of 224,000, in June, 209,000 jobs were created in the non-agricultural sector.
One cannot say that June's Non-Farms was a complete failure - for example, the wage indicator was in the "green", and the unemployment rate dropped to 3.6%. But firstly, traders expected stronger results (the aforementioned ADP report in this regard did a bearish favor to the dollar bulls), and secondly, the published figures did not add confidence that the Fed will decide on another rate hike after the July meeting.
I note that by the end of the week, the likelihood of a 25 basis point rate hike in July is 93% (according to data from the CME FedWatch Tool). The likelihood of maintaining the status quo at the September meeting (assuming a rate hike in July) is 70%. The result speaks for itself. The main macroeconomic reports that were published last week, on the one hand, strengthened the hawkish attitude regarding the July meeting, and on the other hand, weakened it regarding the September prospects.
In this context, the position of Chicago Fed Chairman Austan Goolsbee (who has voting rights this year) is noteworthy, who commented on the June nonfarm data. He noted that the labor market in the United States is still strong, but it is clearly weakening. At the same time, he urged not to perceive wage data as a leading indicator of inflation - in his words, "prices move first, then wages." These comments from the representative put additional pressure on the greenback.
Can we say that the dollar suffered a defeat at the end of the week? Both yes and no. Tactical defeat - yes, strategic - (yet) no.
The deciding factor here will be the inflation report, which will be published next Wednesday, July 12th. If the consumer price index ends up in the "red" (especially the core one), the dollar will lose an important fundamental trump card, and buyers will try to consolidate within the 10th figure. However, if the inflation data surprises traders with a "green color", the pair will not only return within the range of 1.0850-1.0930, but will also try to move towards the base of the 8th figure. Therefore, it is way too early to "bury" the greenback.
