For the second consecutive day, EUR/USD tries to surpass the resistance level at 1.1250, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. On Tuesday, EUR/USD buyers reached a multi-month high, marking a level like 1.1276. However, as the price approached the boundaries of the 1.13 figure, the upward momentum faded as traders took profits on their long positions.
In general, the pair extends the bullish race, although market participants are exercising caution. The previous impulsiveness that we observed over the past two weeks is no longer present. In anticipation of the July meetings of the Federal Reserve and the European Central Bank, traders are not in a rush to open significant positions but are eager to take profits at the first convenient opportunity. It is likely that the pair will continue to trade in this manner until next Wednesday, which is when the outcome of the Fed meeting will be announced (the verdict of the ECB will be known the following day). Major economic reports of the week are unlikely to significantly alter the fundamental picture for the pair. Key reports (related to inflation and the labor market) have already been published and factored in by the market during the first two weeks of July. In fact, the pair has risen more than 400 pips this month due to these reports. Traders can choose to pay attention or disregard this week's macro data.
For example, at the start of the US Tuesday session, the US released its retail sales report, which turned out to be in the "red." Retail sales increased 0.2% last month, compared to forecasts of 0.5%.
Another US report also turned out to be a disappointment. US industrial output fell in June for the second straight month. The June index of production decreased 0.5%, compared to expectations of it remaining unchanged. The gauge has been in the red for the second month.
Traders in the EUR/USD pair reacted in their own way to the weak results of the aforementioned reports: instead of the expected growth, the pair briefly fell towards the 1.12 mark. However, sellers are following the same logic as buyers, taking profits at the first convenient opportunity. In a sense, the pair has reached a stalemate. Traders have played out the significant events of the past weeks and are now waiting for the "final chords" that will be played by the Fed and the ECB at the end of July.
The complexity of the situation lies in the fact that the formal outcomes of the July meetings are already largely predetermined. Data from CME shows that analysts have a 97% chance of a quarter point rate hike this month. And naturally, no secondary reports can shake theri resolve. At the same time, the probability of another rate hike in September is only 11%. The probability of a rate hike in November is 25%. A similar situation has unfolded with the ECB. No one doubts that the ECB will raise rates by 25 basis points next week. However, the next steps in this direction are still questionable, despite the hawkish stance of some central bank officials and the hawkish tone of the minutes from the ECB's June meeting.
It is clear that the latest reports are not capable of casting doubt on the rate hikes in July, but at the same time, they are not able to strengthen/weaken the hawkish expectations regarding the central banks' future course of actions.
As a result, the pair is stuck in a flat phase, with the conditional boundaries marked at 1.1150-1.1250 (the lower point being the Kijun-sen line on the four-hour chart, and the upper point being the upper Bollinger Bands line on the daily chart). Most likely, the pair will drift within this price range in anticipation of the Fed and the ECB meetings. The scheduled macro data that will be released in the coming days are unlikely to push the pair out of this price range - only a sharp surge in risk aversion can accomplish that. However, the "black swan" scenario is a priori unpredictable, so in this case it should be taken out of the brackets of forecast constructions.
From a technical standpoint, buyers tried to break higher and surpass the resistance level at 1.1250 (the upper Bollinger Bands line on the daily chart) in order to pave the way to the next price barrier at 1.1300. They failed as the resistance level held firm. Formally, long positions remain in focus since the pair is either above or between the middle and upper Bollinger Bands lines, as well as above all the lines of the Ichimoku indicator (including the Kumo cloud) on all higher time frames. However, it would be wise to open long positions only on downward retracements with the aforementioned target at 1.1250. This level currently acts as a significant price barrier.