EUR/USD. Preview of the week. ISM data, European inflation, Powell's speech and Nonfarm payrolls

It's already July, which means that the key macroeconomic indicators for June will finally be released. As a rule, the first week of the month is the most "intense" and eventful (with the exception of January). And the first week of July is no exception. Consider this: the ISM indices, key data in the US labor market, and the Federal Reserve minutes.

On the other side of the Atlantic, key data on inflation in Germany and the Eurozone will be released. In addition, we will hear from Fed Chairman Jerome Powell, who will participate in a discussion at the "Monetary Policy in an Era of Transformation" forum.

Monday

So, today the most significant release of the day will be published during the US trading session. This is the ISM Manufacturing Index. For the past two months, this indicator has shown a downward trend, being in the contraction zone. It came out at 49.2 points in April, and was 48.7 in May. According to forecasts, in June, the index may return to the April level (49.2). The dollar will receive significant support only if, contrary to forecasts, the indicator enters the expansion zone, that is, exceeds the target of 50.0.

Market participants should also focus on Germany's inflation report, as German figures often correlate with overall European figures (Eurozone data will be released tomorrow, on Tuesday). According to forecasts, the Consumer Price Index in Germany will decrease to 2.3% y/y, after rising to 2.4% in May. The harmonized index should also show a downward trend – 2.6% y/y after rising to 2.8%.

European Central Bank President Christine Lagarde will open the "Monetary Policy in an Era of Transformation" forum in Sintra (Portugal) today, where Fed Chair Jerome Powell is also scheduled to speak. Lagarde's speech will be ceremonial in nature and is unlikely to affect the EUR/USD pair.

Tuesday

As mentioned earlier, key data on Eurozone inflation will be released on Tuesday. According to most experts, the European CPI is expected to slow down in June after slightly rising in May. The CPI is expected to come in at 2.5% y/y, after rising to 2.6% in the previous month. The core index, excluding energy and food prices, is expected to be at 2.8% after climbing to 2.9%.

Lagarde, who will again speak at the Sintra forum, will likely comment on this report, but this will be done for formality's sake. If inflation in Germany and the Eurozone predictably (or sharply) slows down, the ECB head may hint at another round of interest rate cuts in September. Such rhetoric would put significant pressure on the single currency.

On the same day, Powell is also scheduled to speak at the forum. He may comment on the latest inflation report that was released last Friday. As a reminder, the core PCE index predictably fell to 2.6% (the slowest growth rate since March 2021).

The U.S. Bureau of Labor Statistics will release data on job openings and labor turnover (JOLTs Job Openings). This is an important release ahead of Friday's Nonfarm Payrolls. According to forecasts, the number of job openings on the last working day of June will be 7.86 million (it was 8.059 million in April) – the lowest value since May 2021. If the report comes in at the forecast level (or lower), it will be a worrying signal ahead of the official data.

The most important release is the ISM Services PMI. After a three-month decline (from February to April), the index unexpectedly and sharply rose to 53.8 in May. The gauge is expected to fall down to 52.5 points in June. For dollar bulls, it is crucial that the index remains in the expansion zone, that is, above 50.0.

During the European session, PMI indices (final estimate for June) will be published. The final estimate is expected to match the initial one.

Key speakers on Wednesday include: New York Fed President John Williams, ECB Vice-President Luis de Guindos, ECB Chief Economist Philip Lane, and ECB Executive Board member Piero Cipollone.

In addition, the minutes from the Fed's June meeting will be published. It is worth noting that the dot plot was updated during this meeting, indicating that the US central bank plans to cut rates only once this year. The hawkish tone of the minutes could support the greenback; however, much will depend on Powell's rhetoric, who will speak the day before the minutes' release.

The economic calendar for Thursday is not packed with significant events. The most notable is the minutes from the June ECB meeting, during which the central bank lowered interest rates by 25 basis points. The ECB president indicated that there is no pre-agreed trajectory for further cuts—everything will depend on inflation.

The minutes from the June meeting are unlikely to have a substantial impact on the EUR/USD pair, mainly because many ECB representatives will speak at the Sintra forum, providing a more up-to-date stance considering the latest data (including the Eurozone CPI data for June).

On Friday, market participants will focus on the Nonfarm Payrolls (NFP) report. This release will be the final highlight of the trading week. According to preliminary forecasts, this report may not support the US dollar. The unemployment rate is expected to increase slightly to 4.1% in June. The number of employed is projected to grow by only 187,000, falling short of the 200,000 mark, and the pro-inflation indicator (average hourly earnings) is expected to drop sharply to 3.6%—the lowest since May 2021.

If the values meet the forecast (or turns out to be worse), the dollar will face underlying pressure as the likelihood of an interest rate cut at the September meeting increases. However, it's worth noting that last month's May NFP report showed an increase of 270,000 jobs (against a forecast of 157,000), and average hourly earnings rose by 4.1% (against a forecast decline to 3.9%). If the US labor market delivers another surprise this month, we might witness another dollar rally.

By the end of this week, the EUR/USD pair may either move to the base of the 1.06 level or consolidate above the 1.0800 target. The high concentration of significant fundamental events will inevitably provoke strong volatility for EUR/USD. The ISM indices, Nonfarm Payrolls (NFP), Eurozone CPI, FOMC minutes, and speeches by the ECB and Fed heads—all these fundamental signals will determine the direction of the EUR/USD price movement.

Traders may consider selling the pair after the price consolidates below the support level of 1.0670 (the lower line of the Bollinger Bands on the 4-hour chart). Similarly, rushing into long positions is not advised, at least until the pair overcomes the resistance level of 1.0760 (the middle line of the Bollinger Bands on the daily chart).