At the end of the previous week, the EUR/USD pair continued to push higher, reaching a multi-week price high. For the first time since September, traders were able to break into the 1.07 level. Unexpectedly weak Non-Farm Payrolls (NFP) figures exerted pressure on the dollar, making it possible for EUR/USD bulls to take control. However, as we know, one thing is to reach a price level, and another is to consolidate in new price territory. Given the current fundamental backdrop, the bulls may not only consolidate around the 1.07 level but also test the next resistance level at 1.0810, which corresponds to the upper band of the Kumo cloud on the daily chart. It's important to note that after such an impulsive and non-retracement growth, a corrective pullback typically follows. Nevertheless, the general picture favors the bullish scenario, even despite the euro's weakness.
By the end of the past week, the probability of another interest rate hike within the current cycle had dropped to its lowest levels. Markets were pricing in a 4% chance of another rate hike, according to the CME Group's FedWatch tool. Traders also lack faith in a "January miracle," with the likelihood of further tightening in January estimated at 8%. These numbers are not on the greenback's side. However, that's just half the story. Despite the Fed's hawkish stance, the market is growing confident that the U.S. central bank will begin to ease its monetary policy in the second quarter of 2024. As such, the likelihood of a 25-point rate cut at the May meeting has jumped to almost 50% (49.8%). And this is despite the Consumer Price Index's growth in September, as did the Producer Price Index. If inflation eases in October (with the data to be released in mid-November), discussions about a monetary policy easing in the first half of 2024 will intensify, mounting more pressure on the greenback.
The economic calendar for the upcoming week is not rich in macroeconomic events for the EUR/USD pair. It mainly includes secondary reports that have limited influence on the pair's dynamics. The Fed will set the tone for trading, with many of its representatives voicing their positions in the coming days.
So, on Monday, we'll learn the opinion of Fed Board member Loretta Mester (who has voting rights by virtue of her position). On Tuesday, we'll hear from Michael Barr (also a Board member with voting rights), the new President of the Kansas City Fed, Jeffrey Schmidt (without voting rights), Board member Christopher Waller (with voting rights), and the President of the New York Fed, John Williams (with permanent voting rights). On Wednesday, Barr, Williams, and Mester will speak again. On Thursday, speeches are expected from the Atlanta Fed President, Raphael Bostic (without voting rights this year), the Richmond Fed President, Thomas Barkin (without voting rights), and Fed Chairman Jerome Powell, who will participate in a discussion at the annual Jacques Polak Annual Research Conference. Finally, on Friday, Dallas Fed President, Robert Kaplan (with voting rights), and Raphael Bostic will speak again.
In the grand scheme of things, the fate of the EUR/USD upward trend lies in the Fed's hands. The November FOMC meeting occurred ahead of the release of the NFP data, so we can assume that most of the Fed officials will soften their stance regarding the further prospects of tightening monetary policy. I doubt anyone will talk about a rate cut, but at the same time, the necessity of another rate hike within the current cycle will be questioned.
By the way, Barkin has already commented on Friday's report. He noted the cooling of the labor market and simultaneously emphasized that inflation would play a crucial role in the rate decision. I believe that the rest of his colleagues, including Powell, will comment on the NFP data in a similar manner. Such rhetoric won't plunge the dollar, but it won't save it either. In this case, the EUR/USD pair will likely fluctuate within the 7th figure but without strong ambitions to reach the 8th price level.
However, if the Fed members do start discussing the prospects of policy easing (even without specific timeframes), the dollar will come under tremendous pressure, and the EUR/USD pair will not only test the resistance level at 1.0810 but also consolidate within the 8th figure. Nevertheless, I must reiterate that this scenario is unlikely, given Powell's rhetoric following the November FOMC meeting.
Overall, in my opinion, the dollar will remain under pressure during the upcoming week due to decreasing hawkish expectations regarding the Fed's future course of actions. Therefore, EUR/USD buyers will gradually (likely with some retracements) move towards the boundaries of the 8th figure, particularly the key barrier at 1.0810, which corresponds to the upper band of the Kumo cloud on the daily chart.
