FX.co ★ EUR/USD. Jerome Powell is the main newsmaker of the day

The euro-dollar pair has drifted in anticipation of the week's key events. There are some major ones: Federal Reserve Chairman Jerome Powell's speech, eurozone inflation data, PCE Core Index, ISM Manufacturing Index, and on Friday, the Nonfarm Payrolls report.

If we take a look at the EUR/USD weekly chart, we can see that the pair has actually drifted. Despite rather high volatility, during the last three weeks, the pair has been in a wide price range at 1.0300-1.0450, alternately approaching the limits and even impulsively surpassing them. But at the same time, bears are unable to go to the area of the 2nd figure, and bulls cannot settle in the area of the 4th price level, not to mention the conquest of the fifth figure. The contradictory fundamental backdrop is not conducive to a downward or upward trend. Both bulls and bears need powerful information to trigger significant movements that can guide them in a no-holds-barred priority of short/long positions.

If we summarize all information flow which influences the EUR/USD dynamics, we can single out two aspects: the level of risk/anti-risk sentiment and discussion of the future actions of the European Central Bank and the Fed. All other fundamental factors revolve around these "main" topics. For example, recently, the most discussed problem is the COVID outbreak in China. Take note that the market has its own approach to the spread of Coronavirus in China, and it is quite pragmatic. Traders are primarily concerned about the reaction of the authorities and the possible economic consequences of the next pandemic wave in the context of new lockdowns. If Chinese authorities go along with the protests and retreat from the "zero tolerance" policy, the safe-haven dollar will come under pressure. Under such circumstances, the number of cases will not alarm investors.

However, as of today this scenario looks extremely unlikely: Chinese authorities are gradually but surely suppressing protests against strict quarantine measures. At the same time, the Chinese government is not going to ease the quarantine restrictions - both for political reasons (it will look like a concession to the protesters) and for medical reasons (after the abrupt cancellation of the "zero tolerance" policy, millions of people will need intensive therapy - the medical system will be overloaded, on the verge of collapse).

Given this disposition, we can assume that events in China will play on the side of the dollar bulls. Despite the ongoing protests, China is likely to continue to implement its radical policy to combat the Coronavirus, closing cities of millions of people under lockdown.

In other words, if we talk about the external fundamental background, the situation is in favor of EUR/USD bears.

And the ongoing debate on the further actions of the ECB and the Fed draws an ambiguous picture.

So, the Fed, most likely, will slow down the pace of tightening monetary policy in December. Many Fed representatives approve of this scenario. The minutes of the Fed's November meeting also reflected the central bank's intention to return to a moderate rate hike. But two important circumstances should be highlighted here. Firstly, the fact of slowing down the tightening of monetary policy at the December meeting is not final. For example, if the November report on U.S. inflation growth does not repeat the trajectory of the October release, the option of a 75-point hike will be back on the table.

Second, many Fed members (notably Bullard, Barkin) have been emphasizing lately that the pace of the rate hike is not that important if the final point of the current cycle is at a higher level. In this context, Powell's speech (he will deliver a speech at the Brookings Institution) is particularly important. According to analysts from the Japanese bank MUFG, Powell's speech will be political and, therefore, hawkish. Powell may again downplay the importance of slowing the pace of rate hikes and warn that the rate is likely to rise to a higher peak than previously planned.

If these forecasts come true, we will witness another dollar rally - including the EUR/USD pair.

It is noteworthy that ECB President Christine Lagarde has not become the euro's ally in this matter. Voicing her stance, Lagarde did not support either supporters of a slowdown in the rate hike, or supporters of a 75-point rate. According to her, the ECB will make an appropriate decision based on "many factors". Answering journalists' questions, Lagarde said "how much further we need to go, and how fast we need to get there, will be based on our updated outlook, the persistence of the shocks, the reaction of wages and inflation expectations, and on our assessment of the transmission of our policy stance."

Hence, the general fundamental picture is in favor of a bearish scenario for EUR/USD. But the bears need explicit, not implicit, arguments - so until Powell's speech (Wednesday, 19:30 London time), do not trust the pair's price movement. At the moment, it would be best to wait and see if Powell will trigger volatility, but it is uncertain whether it will be in favor of the dollar or against it.