EUR/USD. Weekly Preview. ISM Services Index, FOMC Minutes, Unemployment Claims

The economic calendar for the upcoming week appears rather limited, but the lack of quantity can be offset by the "quality." Against the backdrop of the market reassessing the Federal Reserve's next steps (following disappointing June U.S. labor market data), even a few macroeconomic releases could provoke increased volatility in the EUR/USD pair.

Essentially, now practically every somewhat significant economic report could tip the scales either way. If the reports continue to signal a cooling U.S. economy, the greenback's position could come under pressure again. Conversely, the dollar may have a chance at "rehabilitation," giving the market a reason to adjust its expectations regarding the Fed's monetary policy trajectory.

Let's consider the most significant releases for the upcoming week.

As is well known, the services sector in the U.S. is the main driver of the American economy, demonstrating greater resilience to inflationary pressures and geopolitical shocks than the manufacturing sector. In May, the services index unexpectedly surged to 54.5, thanks to strong new orders and business activity. The June report (to be released on Monday, July 6) will help determine whether this signal was a one-off occurrence or if the services sector continues to gain momentum.

According to preliminary forecasts, the ISM Services index is expected to decline slightly—from 54.5 to 54.2. It is important to note that the manufacturing index in June indicated a slowdown in the pace of production expansion (52.2 after May's increase to 54.3) and a decrease in new orders (56.0 vs. 56.6). The services sector will likely follow this path to "cooling" after the peak values of May.

Particular attention should be paid to the pricing component of the report. In May, the services price index jumped to 71.3 (the highest value of the sub-index since August 2022) amid rising fuel and logistics costs. In June, a decrease to 68.5 is expected. Again, referencing the ISM manufacturing index, it is notable that the corresponding price sub-index surprised traders, plummeting 9 points. Since the services sector reacts to changes in energy resource prices with a slight lag, price pressures in the June ISM Services report should also ease. If the pace of decline in this sub-index exceeds forecasts, the dollar could come under significant pressure as this is one of the main drivers of sustained inflation.

Additionally, the employment component is also of considerable importance, especially in light of the disappointing June Nonfarm Payrolls. The services employment sub-index has been declining for three consecutive months, falling to 47.9 in May. Forecasts suggest that in June, it should remain in the contraction zone (48.2), confirming signs of a gradual cooling in the U.S. labor market. If this sub-index falls into the red zone, the dollar may face significant pressure, as the services sector accounts for the majority of employment in the U.S. economy.

On Wednesday, July 8, the minutes from the June FOMC meeting will be released in the United States. The minutes do not always drive increased volatility in dollar pairs; however, this time their significance is hard to overstate. This document will reveal the details of the Committee's first internal discussion under the chairmanship of Kevin Warsh.

As a reminder, the Federal Reserve kept the interest rate unchanged in June, but the updated dot plot delivered a hawkish surprise: the median forecast shifted toward at least one rate hike by the end of the current year (whereas previously markets had priced in one round of rate cuts). Warsh himself refrained from publishing his own dot while simultaneously announcing the creation of a working group to reform the Fed's forecasting tools.

Given this "preview," the market will carefully assess how unanimous this hawkish shift was. In particular, how many participants were truly in favor of further rate hikes, and how many preferred to maintain the current parameters of monetary policy. The more mentions in the minutes of the risks of resuming (or intensifying) inflationary pressures, the stronger the support for the dollar will be.

It is also worth noting that in mid-June, at the time of the FOMC meeting, the Fed relied on quite strong May labor market data. However, market participants now have the June Nonfarm Payrolls report, which was significantly weaker than the spring figures. In this context, it will be particularly interesting to see whether FOMC members discussed the risk of a cooling labor market as a factor that could restrain inflationary pressures without raising interest rates.

The weekly statistics on unemployment claims are particularly significant now, in the context of the disappointing NFP report. In the current circumstances, the Unemployment Claims report serves as a litmus test, allowing insight into whether the labor market continues to cool (due to weak hiring rates and rising layoffs), or whether the June Nonfarm figures were merely a temporary "deviation."

In the previous reporting week, initial claims rose by 215,000, against a forecast increase of +225,000. Most analysts believe that on Thursday, the figure will be around 218,000. Thus, despite a wave of workforce optimization at major corporations (such as Verizon, Amazon, and Walmart), this indicator has remained consistently within the comfortable range of 210,000 to 230,000. If it remains in this range, the dollar is likely to ignore the release. However, if the figure unexpectedly exceeds the 230,000 mark, the greenback could come under significant pressure.

Much greater concern arises from the dynamics of continuing claims for unemployment benefits. This indicator has shown a consistent upward trend for the fourth consecutive week. Such dynamics indicate that if a person has lost their job, finding a similar position quickly is currently quite difficult. In the preceding reporting week, Continuing Claims rose to 1.814 million. According to forecasts, the figure is expected to grow to 1.830 million in the coming week (marking the fifth consecutive week of increases).

The technical picture for the EUR/USD pair indicates the development of an upward impulse from the medium-term low of 1.1325. As a result, buyers have established themselves within the 14th figure, maintaining the potential for further growth.

On the four-hour timeframe, the pair is moving within a local ascending channel, aiming to break above the aforementioned resistance level of 1.1470. On the daily chart, there is a "decompression" from long-term oversold conditions; however, the pair remains trapped within a global bearish trend.

Despite attempts made last week, EUR/USD buyers were unable to overcome the indicated resistance level of 1.1470 (the middle line of the Bollinger Bands on D1 + the upper boundary of the Kumo cloud). Therefore, it is advisable to consider long positions only after the pair successfully "captures" this height. The next key test for EUR/USD bulls will be the cluster zone at 1.1530 (the Kijun-sen line on D1), where the 200-period EMA (H4) and the 38.2% Fibonacci retracement level converge.