The EUR/USD pair failed to consolidate above the level of 1.1950, thereby defining the borders of the price range within which it found itself after the "dovish" results of the ECB's June meeting and the "hawkish" results of the Fed's June meeting. On the wave of the general strengthening of the US currency, the bears of the main currency pair entered the area of 1.18 mark, but at the same time did not break through the support level of 1.1850 (lower line of the Bollinger Bands indicator on the daily chart). This target has formed a support level, which simultaneously plays the role of the lower limit of the temporary price range. The upper border corresponding to the lower border of the Kumo cloud on the same time frame is 100 points higher.
Based on the previous week's results, it can be concluded that the indicated instrument is trading in a narrower range (1.1900-1.1950-70), but the "round" level of 1.1900 is not a support level – sellers enter the area of the 18th figure every time they can. A kind of system of "checks and balances" does not allow the bulls to go higher, and the bears to fall to the borders of the level of 1.17. A certain imbalance was observed after the results of the Fed's last meeting were announced. Last week, the US dollar was in high demand, as a result of which EUR/USD recoilless collapsed by 300 points down – from the middle of the level of 1.21 to the middle of 1.18. Nevertheless, Jerome Powell's speech in Congress on Tuesday balanced the situation with his "dovish" rhetoric. He extinguished the dollar rally, after which the excitement around the US dollar noticeably fell. The CEO of the Federal Reserve, John Williams, who made a speech yesterday, voiced similar rhetoric. In particular, he said that inflation growth will slow down near 2022.
The US dollar is also under pressure from the weak macroeconomic reports released this week. In particular, the indicator of home sales in the primary US market showed a negative trend, falling by almost 6%. The US index of business activity in the services sector was also disappointing. The indicator interrupted its consecutive 5-month growth and came out in the "red zone", not meeting the forecast values. In addition, the volume of orders for long-term American goods (excluding transport) increased by only 0.3%, with growth forecast to reach 1.2%. Another indicator in the field of the labor market similarly disappointed dollar bulls. The growth rate of initial applications for unemployment benefits came out in the "red zone" again, interrupting a multi-week downward trend.
In turn, the Euro received support from the European macroeconomic reports, but also came under pressure from the ECB's "dovish" rhetoric. The German indicator of economic expectations IFO exceeded the 100-point mark again in June amid the continuing improvement of the epidemiological situation and mass vaccination of the population. The business environment indicator also entered the "green" zone, reaching 101 points (the best result since April 2019). The euro was also supported by PMI indices – German, Italian, partly French, as well as pan-European indicators came out in the "green zone", reflecting the recovery processes both in the manufacturing sector and in the service sector. Prior to this, European inflation and the main indicators of the labor market showed positive dynamics.
The ECB president noticed such trends. At the beginning of the week, Christine Lagarde said that the prospects for the European economy are improving in many ways, and the recovery is gaining momentum. But at the same time, she added that the new COVID strains still pose a danger, including for the economy of the European region in the context that EU countries may resort to tightening quarantine restrictions again. Summarizing her speech, Lagarde concluded that the support of the European Central Bank is still necessary, given the current risks.
Other ECB representatives also voiced a dovish position. In particular, the Chief Economist of the regulator, Philip Lane, believes that it is too early to talk about the termination of emergency purchases of bonds. At the same time, he was skeptical about the likelihood of curtailing QE this year. In turn, Isabel Schnabel expressed the opinion that " short-term rates will remain low for a long time." Such remarks neutralize the optimism associated with the recovery of the European economy.
In this case, both the euro and the dollar have a kind of barrier that does not allow buyers or sellers of the EUR/USD pair to leave the range of 1.1850-1.1950, having consolidated above/below these levels. At the moment, it is advisable to take a wait-and-see position considering the "Friday factor" and the upcoming weekend. In particular, longs are currently quite risky since the pair is located at the upper limit of the above range. Moreover, traders can take profits at the end of the trading week, putting downward pressure on the pair. In turn, it is also impractical to go into sales before the weekend, given the general vulnerability of the US currency.