The Euro-Dollar pair has entered a drift. After soaring to the boundaries of the 8th figure, the price made a 180-degree turn and returned to the area of the 6th figure. However, the EUR/USD bears are struggling to develop a downward movement. The pair moves approximately according to the scheme of "one step forward, two steps back, reversal."
The greenback plays the leading role, but it is susceptible to the influence of conflicting fundamental factors. On one hand, there are disappointing Nonfarm Payrolls and a decline in Treasury yields; on the other hand, hawkish statements from some members of the Federal Reserve persist, advocating for another interest rate hike. Events in the Middle East have taken a back seat in terms of their impact on the currency market after reports that Hezbollah (for now) is not entering into a war with Israel. The Middle East conflict retained its local status despite its tragedy and lethality. Therefore, this fundamental factor has stopped "working" in favor of the safe-haven dollar.
Overall, the market is frozen, awaiting the next informational impulse. The economic calendar for the current week is not saturated with important events, with the nearest significant release scheduled for November 14 (October U.S. Consumer Price Index). However, this week, we can hear the opinions of many Federal Reserve representatives, including Chairman Jerome Powel, who's speech yesterday was ignored by the market as it had a ceremonial, welcoming nature.
However, today, Powell's words could still provoke some volatility. Towards the end of the U.S. Thursday session, he will participate in a discussion at the Jacques Polak Economic Conference. Due to growing confidence that the Fed will cut interest rates in the first half of next year (the probability of a rate cut at the May meeting is 40%), Powell may "separately" refute corresponding rumors.
However, the head of the Federal Reserve cannot speak with certainty about the decisions that will be made (or not made) in six months. Therefore, when discussing the prospects of tightening or easing monetary policy, he will, in any case "tie" the actions of the Fed to the dynamics of key macroeconomic indicators—primarily in the areas of inflation and the labor market. This implies that reports on CPI growth and Nonfarm Payrolls will play a decisive role in strengthening dovish or hawkish sentiments, not comments from Federal Reserve representatives.
Pay attention to the restrained reaction of the dollar to hawkish comments from some Federal Reserve officials. Both Lorie Logan and Michelle Bowman, who have voting rights in the Committee this year, effectively advocated for further interest rate hikes. On one hand, they dampened the upward impulse of EUR/USD and returned the price to the area of the 6th figure. On the other hand, they failed to trigger a dollar rally—the pair is trading on the border of the 6th and 7th figures. This indicates market skepticism about the Fed's decisiveness. Even Bowman, who most strongly advocated for additional tightening of monetary policy, acknowledged the significance of upcoming inflation releases.
This is essentially what Powell was talking about when answering questions about the prospects of monetary policy tightening at a press conference. According to him, two labor market reports and two inflation reports will be published before the December meeting. Therefore, it is impossible to speak in advance about any prospects without a complete picture. A day after the press conference, the October Nonfarm Payrolls were released, reducing the probability of a December interest rate hike to 9%. If the CPI growth report next week also disappoints dollar bulls, the chances of a December hike will drop to zero. At the same time, confidence in the Fed's decision to cut rates by 25 basis points in the first half of 2024 will grow in the market.
In such conditions, it is difficult to imagine a sustainable downward trend of a fundamental nature. The "Sword of Damocles" of October inflation will hang over EUR/USD traders until November 14, when the report will be published. At the same time, it can be assumed that in the near future, the pair will hover in the price range of 1.0650 – 1.0750, between the middle and upper lines of the Bollinger Bands indicator on the four-hour chart. It is not worth trusting short positions below 1.0650, as a weak inflation report (which will complement the disappointing labor market report) will significantly impact the dollar. Dovish sentiments will intensify, and in this case, the Fed "hawks" will no longer be able to help the greenback.
