The EUR/USD pair continues to trade in the range of 1.1150–1.1250, showing sideways movement. However, while the price tended towards the upper boundary of the price range at the end of the last week (and the beginning of the current one), the situation has now reversed. The pair has become heavier, with upward movements and significant downward retracements. Overall, traders are still mostly indecisive, but in the second half of the week, the bears in the EUR/USD pair seem more confident and proactive.
Upon analyzing the weekly chart, it is evident that the pair is undergoing a correction after its rapid surge last week. The price jumped nearly 300 points in response to the slowdown in inflation in the USA and the release of a hawkish record from the June meeting of the European Central Bank.
During this week, the pair attempted to extend its gains but moved with less momentum and enthusiasm. As a result, buyers failed to establish a solid foothold above the resistance level of 1.1250 (the upper line of the Bollinger Bands indicator on the D1 timeframe), and sellers took over the initiative. However, sellers have yet to achieve significant results either. To gain the upper hand and continue the downward movement, EUR/USD bears need to breach the support level of 1.1150 (the upper boundary of the Kumo cloud on the daily chart), consolidate at that level, and then head towards the base of the 11th figure. However, it's worth noting that usually, the downward momentum fades similarly to the preceding upward momentum. The pair remains in "neutral" territory, near the border of the 11th and 12th figures.
The economic calendar for the current week has few significant events. Representatives of the Federal Reserve are keeping a low profile ahead of the July meeting, while members of the European Central Bank are providing specific information only about the prospects of the July meeting. The outcomes of the July meetings of the Fed and ECB are mostly anticipated and already factored into the market. Market participants are certain that both regulators will raise interest rates by 25 basis points next week. However, the further prospects of tightening monetary policy remain uncertain, and current macroeconomic releases are insufficient to dispel this uncertainty. Consequently, EUR/USD traders are awaiting key events this month. The July meetings of the Fed and ECB, scheduled for next week, will provide more clarity and determine the pair's fate in the medium term.
The current macroeconomic reports may cause only local price fluctuations. In some cases, traders completely disregard the published data. For example, on Tuesday, the USA released data on retail sales. Although the release did not favor the greenback (all components were in the "red zone"), buyers could not capitalize on the situation.
On the other hand, the external fundamental background has a more substantial impact on EUR/USD. For instance, today, risk-averse sentiments increased in the markets due to heightened rhetoric from Chinese officials towards the USA. China's ambassador to Washington, Cui Tiankai, stated that his country does not want a trade or technological war but will "definitely respond" if the United States introduces additional restrictions in the semiconductor sector. This statement was in response to news that the US is considering implementing a mechanism to scrutinize outgoing investments and further restrict the export of artificial intelligence chips to China. Previously, Washington imposed export controls on American components and tools for microchip manufacturers to prevent their use in enhancing China's military capabilities.
In response, Beijing retaliated by banning Chinese companies from purchasing memory chips from Micron Technology. Additionally, Chinese officials announced restrictions on exporting rare earth metals used in semiconductor production for national security reasons.
Given the news, risk-averse sentiments have risen in the markets, leading to a higher demand for the safe-haven dollar.
In addition, North Korea threatened a nuclear strike against the USA today in response to the American strategic submarine entering the port of Busan in South Korea. According to White House representative Kurt Campbell, the US Navy submarine with nuclear weapons on board is already stationed in the port of the South Korean city (this is the first occurrence in several decades).
As a result of the increased demand for safe assets, EUR/USD bears tested the lower boundary of the 1.1150 - 1.1250 range, even though buyers pushed the intraday high to 1.1230 earlier this morning.
Notably, today's macroeconomic statistics did not favor the greenback. The Federal Reserve Bank of Philadelphia's Manufacturing Index declined to -13.5, with a forecast of a decrease to -10, and home sales volume in the US secondary market dropped by 3.3% (the worst result since November 2022). However, despite the strengthening of risk-averse sentiments, the dollar could not only remain stable but also test the lower boundary of the 1.1150 - 1.1250 range. Unless the situation deteriorates significantly (in the context of US-China and US-North Korea relations), it is unlikely that the downward trend will have a long-term continuation.
Therefore, given the current fundamental conditions for the EUR/USD pair, it is advisable to maintain a cautious stance. On the one hand, traders eagerly anticipate the July meetings of the Federal Reserve and the European Central Bank, the outcomes of which will determine the medium-term price movement. On the other hand, risk-averse sentiments are increasing in the markets, giving the dollar bulls a chance to regain momentum. The situation is too uncertain, making staying out of the market safer.