FX.co ★ EUR/USD. US inflation will not help either bulls or bears

The euro-dollar pair continues to trade in a fairly wide price range, within the range of 1.1140 (Tenkan-sen line on the daily chart) and 1.1260 (lower line of the Kumo cloud on the same timeframe). For the past week, the pair daily goes up and down to 100 points, but is de facto marking time. The EUR/USD bears are pulling the pair to the bottom of the 11-figure, due to the weak position of the euro. The political crisis in Italy, the prospects for a hard Brexit, as well as the likelihood of large-scale easing of monetary policy parameters by the ECB are putting significant pressure on the European currency. Meanwhile, the dollar also remains vulnerable, due to the escalation of the trade war and the "dovish" expectations about the change in monetary policy by the Fed. As a result, traders are forced to play a kind of price ping-pong, since neither side has the strength and arguments to overcome the boundaries of the designated range.

Today's situation is unlikely to change, despite the fact that the release of the most important indicator is expected at the beginning of the US session on Tuesday. This is the US consumer price index. Of course, this indicator can provoke increased volatility, but the price of EUR/USD is unlikely to leave the above price niche. If inflation disappoints, then the market will again talk about a possible reaction from the Fed. According to the currency strategists of the financial conglomerate Morgan Stanley, the US regulator will lower the interest rate two more times, and both times in the fall (at the September and October meetings). Then the Fed will take a break, but will resume the cycle next year, reducing the rate by about three times. According to other analysts, the Federal Reserve can follow the path of the Reserve Bank of New Zealand, which reduced the rate by 50 basis points at once. I note that at the moment the probability of such a move is minimal, but if the trade war continues to gain momentum, then this scenario may come true. At least, such a scenario cannot be categorically discounted.

In the context of such possible prospects, US inflation plays a special role. If the July report comes out in the "red zone", then the likelihood of more aggressive actions by the Fed will increase significantly, especially against the backdrop of the failed trade negotiations between the US and China. If the release comes out at a forecasted level (or better than forecasts), the dollar will receive temporary support, but in this case, the downward impulse will be limited by the basis of the 11th figure. The US currency will continue to be under pressure from the Fed's dovish intentions - until such intentions are refuted by Jerome Powell and/or other members of the Committee.

But it is worth noting here that weaker inflation (relative to the consensus forecast) will also not be able to reverse the situation for the pair in a cardinal way. If the numbers come out in the red zone, the bulls can test the resistance level of 1.1260 - but it is unlikely that it will be "tough" to them. In addition, in order to reverse the trend, EUR/USD buyers need to not only overcome the lower border of the Kumo cloud, but also gain a foothold above the upper border of the cloud, as well as above the upper line of the Bollinger Bands indicator on D1 (i.e., above 1.1300). In any other case, we will only deal with corrective growth followed by a pullback to the area of the above price range.

In general, there are no prerequisites for large-scale upward growth of EUR/USD, even at the expense of a weak dollar. The political crisis in Italy is a "time bomb", so traders are very serious about the latest events in Rome. League leader Matteo Salvini is eager for re-election and premiership, and has widespread support among Italians. This fact is even more worrying, given the rhetoric of Matteo. In particular, in the event of his coming to power, he promised to drastically reduce taxes, while introducing a single income tax rate of 15%. At the same time, Salvini said: "... if Europe allows us this, it's good, but otherwise we will do it anyway." The leader of the League conducts his political (and actually pre-election) campaign under the auspices of the "return of sovereignty". It is obvious that if he succeeds in holding re-elections, the euro will collapse throughout the market - the months-long negotiations between Rome and Brussels on agreeing on the level of the Italian budget deficit are still fresh in my memory. If more radical politicians come to power in Italy, then this split will take on a different scale, especially with the approval of the budget for 2020.

Thus, with a high degree of probability, the EUR/USD pair will remain within the range of 1.1140 - 1.1260 today, even if the price is impulsive and breaks one of the boundaries of this band.