At the start of the new trading week, the EUR/USD pair returned to the 1.09 level. Buyers of EUR/USD were unable to keep the positions taken on Friday. On the last day of the past week, the pair sharply jumped to the level of 1.1043, reacting to the US labor market data. However, by the end of Friday, it became clear that the upward momentum was a kind of bubble that would inevitably burst. The pair was rising on rather shaky, controversial grounds, so there could be no talk of a trend reversal.
The current downward retracement looks quite logical and predictable. However, the bearish prospects for the pair are also quite uncertain, as key data on US inflation will be released in a few days (Thursday, Friday). In anticipation of such data, traders are unlikely to risk a "big game" in favor of (or against) the US dollar. It seems that the EUR/USD pair is entering a consolidation phase and will be trading in the range of 1.0950-1.1050 in the near future.
Contradictory report
Let's return to the Friday Nonfarm Payrolls report. This was contradictory, so the clear interpretation of the figures "against the dollar" initially looked dubious. Judge for yourself: the unemployment rate decreased again in July (to 3.5%), while most experts expected to see this indicator at the June level (3.6%). Unemployment is decreasing for the second consecutive month. The labor force participation rate is 62.6%. This indicator has been at this level for the fifth consecutive month. And finally, the wage indicator turned out to be in the "green." The average hourly earnings increased by 4.4% YoY in July, contrary to the forecasts of a decline to 4.1%. Here, too, one can speak of a kind of stability - the indicator has been at the 4.4% mark for the fourth consecutive month.
However, traders focused on the weak points of the report. The nonfarm payrolls fell short of the 200,000 mark for the second consecutive month (the June result got revised lower to 185,000). The accompanying component of the report - the indicator of private sector employment growth - also ended up in the "red."
As a result, market participants unanimously decided that the "glass is half empty" rather than full, after which the dollar faced a wave of selling. Such a straightforward reaction to a rather contradictory release is partly explained by the strong ADP report, which was published two days before the Nonfarm Payrolls. According to preliminary forecasts, the number of private sector employment increased by 180,000 in July. However, according to ADP specialists, the number of jobs created in this sector increased by 324,000. Such a result allowed for the assumption that the official report would also be in the green. But as we can see, the ADP figures do not always correlate with official data. Nevertheless, the fact remains: the July Nonfarm Payrolls did not live up to the "hopes" placed on them, and this fact caused significant volatility among dollar pairs.
The dollar is regaining its ground
Today, it seems that emotions have subsided - buyers have locked in their profits, thereby extinguishing the remaining upward momentum. Amid an almost empty economic calendar on Monday, the pair is slowly but steadily sliding towards the lower band of the 1.0950-1.1050 price range (the middle line of Bollinger Bands on the 4H chart - the upper line of Bollinger Bands on the same timeframe).
Now, traders will focus on the US inflation reports this week. On Thursday, we will learn about the Consumer Price Index, and the next day - the Producer Price Index.
The main attention will be on the Consumer Price Index report. According to preliminary forecasts, in July, the CPI will resume its growth, while the core index will slightly slow down. If both indicators come out in the "green" (i.e., if inflation in the United States starts to accelerate again after months of decline), the fundamental background for the EUR/USD pair (as well as for other dollar pairs) will change significantly. In that case, the pair will likely change its price range, declining to the 7th or 8th figure, while aiming to fall further to the 6th figure. After all, if inflation growth rates do accelerate, the probability of a 25-point rate hike at the Federal Reserve's September meeting will significantly increase (currently, this probability is only 15%, according to CME FedWatch Tool data).
Conversely, if the inflation reports show a "red tint," the likelihood of a rate hike in September will be practically reduced to zero.
Given the lingering intrigue, the EUR/USD pair will most likely continue to trade in the range of 1.0950-1.1050 (with a possible temporary breakthrough towards the 9th figure) - until Thursday, which is when the July CPI report will be published.
