The EUR/USD pair continues to trade flat, showing its back-and-forth nature for the second consecutive week. Price fluctuations are confined to the 1.0500-1.0630 range. In this scenario, bears try to break into the 1.04 area, while bulls aim to approach the mid-1.06 range, specifically, the resistance level of 1.0650. However, both sides seem to be at a disadvantage. Traders need a powerful impetus to help push the price out of the flat range, either downwards towards the 1.0450 area or upwards to the boundaries of the 1.07 range. Nevertheless, the recent information landscape appears mixed.
Last week's US inflation data boosted the greenback. On the one hand, some indicators (Producer Price Index, the Consumer Price Index) demonstrated an uptrend, reflecting the corresponding trends. On the other hand, the core CPI and wage indicators have been consistently decreasing. It's worth mentioning the core PCE index, which is also falling, as it only increased to 3.9% in August (the lowest value since the fall of 2021).
Such mixed signals require additional clarification from the Federal Reserve officials. The greenback's fate in the medium term depends on their assessment of inflation trends. In other words, traders need assistance from the Fed.
This week, 12 US central bank officials are expected to speak, as well as Fed Chairman Jerome Powell. On Monday, the head of the Federal Reserve Bank of Philadelphia, Patrick Harker, who has voting rights this year, expressed his position. In general, he has a hawkish role, but he presented arguments that were not hawkish at all. On the contrary, he believes that the Fed is "at the point where we can hold rates", since another rate hike would further pressure the economy. He also noted that the current Fed policy is weighing on the real estate market, as higher rates discourage current owners from listing their homes for sale. According to him, the central bank has most likely "completed the rate hike cycle."
It's worth noting that Fed officials rarely express such straightforward positions without any "maybes" or "possibilities." In this case, Harker was quite firm - "no," and that's it. It's not surprising that the greenback fell after Parker's remarks: the U.S. Dollar Index left the 106-handle region and settled below the 106.00 target once again. In turn, the EUR/USD pair solidified its position above the 1.0500 level and headed towards the boundaries of the 1.0600 region.
The ZEW index also provided support. All components of the data were in the green zone. In particular, the Economic Sentiment Index in Germany rose to -1.1 points in October, beating expectations of a rise to -9 points. In September, this indicator was at -11.4 points. The Economic Sentiment Index in the eurozone also showed an uptrend, with the indicator rising to 2.3 from the previous -8.9. For the first time since April, the index emerged from negative territory (while experts expected a decline to -9 points). Commenting on the report, a representative from the ZEW Institute noted that the heightened economic expectations are accompanied by the anticipation that inflation rates will decrease further. Negative factors such as the Middle East conflict "have had only a limited impact on global economic growth".
By the way, the Middle East conflict had a limited impact on the greenback as well. Geopolitics (for now) is not on the dollar's side. Risk-off sentiments have decreased, with Israel postponing its ground operation in the Gaza Strip. The official reason is unfavorable weather conditions. However, according to many observers, the United States is opposing this scenario (especially given Biden's expected visit). Furthermore, according to statements from the Israel Defense Forces (IDF), Israel might forgo the ground operation altogether - as they put it, "perhaps it will be something else."
Thus, the current fundamental backdrop does not support the progress of a downtrend. Harker's statement, urging not to raise rates further, exerted downward pressure on the greenback. An optimistic release from the ZEW Institute only boosted the positions of EUR/USD buyers. However, the speeches by other Fed officials and, especially, Fed Chair Jerome Powell (Thursday, October 19), are weighing on the pair, acting as a counterbalance. The dollar also received support from the US retail sales report. The indicator increased by 0.7% against a forecast of 0.3%, excluding autos, it increased by 0.6% against a forecast of 0.2%. Dollar bulls were pleased with the latest industrial production report, which increased by 0.3% in September, after showing no signs of growth in August.
Such mixed signals contribute to the flat. The ambiguous fundamental backdrop prevents the bulls from testing the resistance level at 1.0640 (Kijun-sen line on the daily chart), and bears from approaching the support level at 1.0450 (the lower Bollinger Bands line on the same chart). Therefore, in the medium term, the pair will likely move within the 1.0500 - 1.0630 range.
