Buyers of the EUR/USD pair are recovering their positions today after sellers failed to establish themselves in the 8-figure area. As they say, "If you can't beat them, join them."
The US dollar index yesterday and in the first half of today tried to stay afloat but lost all the positions gained at the start of Tuesday's American session, returning to the base of the 102 figure. However, in the current conditions, no one can feel confident—neither buyers of EUR/USD nor sellers. The economic calendar for Monday and Tuesday is not saturated with significant events while starting tomorrow, dollar pairs will again be in a zone of price turbulence. On Wednesday, Jerome Powell and Christine Lagarde will voice their positions at an economic forum in the Portuguese city of Sintra. On Thursday, we will learn about the dynamics of German inflation. Friday will bring the report on the growth of the PCE index in the US and the report on inflation growth in the eurozone. All these events can " redraw" the fundamental picture for the EUR/USD pair.
It is worth noting that today the pair is growing not only due to the weakening of the American currency. The euro has also contributed, reacting to the rhetoric of the ECB President. Today, Christine Lagarde opened the European Central Bank Forum, and in her welcoming speech, she made sufficiently hawkish remarks that helped strengthen the upward dynamics for EUR/USD buyers. Tomorrow, Lagarde will participate in a panel discussion (among others, Jerome Powell, Andrew Bailey, and Kikuo Iwata will participate). At the same time, today, market participants can only evaluate the opening speech, which usually has a ceremonial character with vague formulations and general phrases. However, Lagarde was surprised by specificity, which favored the single currency in this case.
By and large, the ECB President reiterated the theses recently voiced. Still, the market did not ignore her words and reacted accordingly: the euro rose against the dollar and in many cross pairs (particularly EUR/GBP and EUR/JPY). The thing is, Lagarde effectively announced a "hawkish marathon" that will not be limited to the July meeting. The head of the European regulator emphasized that in the absence of any serious force majeure changes, the central bank will raise rates again in July. According to her, after this move, it will not be possible to say that the peak of rates has been reached. As Lagarde noted, in the "near future," the central bank is unlikely to reach the final point of the current tightening monetary policy cycle.
All this indicates that the ECB leaves the door open not only for a rate hike in September (with central bank members on vacation in August) but also for the remaining two meetings this year (i.e., in October and December).
Lagarde expressed such a hawkish stance against the disappointing PMI indices published last Friday. For example, the business activity index in Germany's manufacturing sector plummeted to 41 points (with a forecast decline to 44 points). This is the weakest result since May 2020. The corresponding Eurozone index also fell into the red zone, dropping 43 points. The indices in the service sector also declined, both in Germany and the overall European region.
Despite such results, Lagarde maintained a hawkish outlook, supporting the single currency.
Will Jerome Powell be able to provide similar support to the greenback tomorrow? There are serious doubts here. The head of the Federal Reserve has voiced his position in the public space several times over the past two weeks (at the press conference following the June meeting and twice in Congress). His rhetoric was balanced. On the one hand, he acknowledged that the June pause is indeed a pause, not the cycle's end. On the other hand, the Fed Chair indicated that the Federal Reserve is close to the end—he allowed for one "or maybe two" rate hikes within the current year. The market responded to his words a week ago. If he does not tighten his rhetoric in Sintra, traders will ignore it (or the reaction will be temporary and situational).
According to the CME FedWatch Tool, the probability of a rate hike at the July Fed meeting currently stands at 77%. In other words, the market is practically certain about the July hike, so Powell's revelations on this matter will not be a sensation.
Thus, the EUR/USD pair will soon enter a zone of price turbulence. Today's upward spike is just a "trial balloon" and nothing more. Given the high degree of uncertainty, it can be assumed that the pair will demonstrate high volatility over the next few days but will remain within the conditional price range of 1.0880-1.0980, awaiting the speeches of Powell and Lagarde.