FX.co ★ EUR/USD. Hot days are coming: European inflation, ISM index, Nonfarm

The previous trading week passed under the sign of uncertainty. The EUR/USD bears won back the results of the June Federal Reserve meeting and, in fact, lost control over the pair. In turn, the bulls were only able to develop the correction, but did not return even a part of the lost positions. Let me remind you that after the announcement of the results of the last Fed meeting, the pair fell by more than 300 points, dropping from 1.2155 to an annual low of 1.1844. Fed Chairman Jerome Powell's dovish rhetoric in Congress cooled the ardor of dollar bulls, but at the same time EUR/USD bulls could not even test the 20th figure. Traders approached the 1.2000 target on the last day of the trading week, but only due to the "Friday factor", as many market participants closed short positions ahead of the weekend. In general, traders traded in the range of 1.1850-1.1950 throughout the five-day period, occasionally exceeding the upper border of the price range.

The contradictory fundamental background did not allow market participants to take one of the sides. The Fed, on the one hand, announced several rounds of interest rate hikes - but, however, only in 2023. But the fate of the stimulus program, according to representatives of the Fed (including Powell), will depend on the incoming data. That is why the coming week may provoke increased volatility for the pair, since very important releases will be published in the next five days, including key data on the US labor market. The European currency will also react to its reports. However, first things first.

So, the economic calendar is almost completely empty on Monday, June 28: the import price index will be published in Germany, which is an early signal of a change in inflation trends. Experts expect minimal gains in this indicator, but traders are likely to ignore this release.

The US consumer confidence indicator will be published during the US session on Tuesday. Downward dynamics are expected here again. The indicator showed a consistent upward trend over four months, reaching 117.9 points in April. In May, it showed a more modest result, coming out at around 117.2. In June, the indicator should slow down to 116.3 points. However, this release is likely to have a short-term impact on EUR/USD. But the German inflation, which will be published during the European session on Tuesday, may provoke a certain volatility.

German inflation in May surprised with rather strong numbers, despite the continuing quarantine restrictions in Germany. In annual terms, the general consumer price index continued its upward trend, rising to 2.5% in May (the indicator has been growing consistently over the past five months). On a monthly basis, the indicator also entered the green zone, being at the level of 0.5% (with the forecast of growth up to 0.2%). The harmonized consumer price index similarly exceeded the forecasted values - both in monthly and annual terms. According to preliminary forecasts, June figures will also support the euro. It is worth noting here that the German report quite often correlates with the pan-European data, so the corresponding expectations will support the single currency.

European inflation will be published literally the next day - Wednesday, June 30. This is the most important release for the euro, which will be able to return the EUR/USD pair to the area of 20 figures, or vice versa - it will return it to the lower border of the 1.1850-1.1950 range. The consumer price index in the eurozone rose to 2% in May, exceeding the forecasted values. This indicator has been demonstrating positive dynamics for the third consecutive month. For the first time in the last three months, the bar index stopped its decline and showed growth again. Positive dynamics of these indicators is also expected in June: the general index should rise to 2.3%, core inflation should accelerate to 1.4%. If the real values coincide with the forecast, the euro will receive significant support throughout the market, even against the dollar.

On Thursday, July 1, traders of the pair will turn their focus on the US ISM manufacturing index, which may weaken the position of the dollar bulls. This indicator grew from January to March, supporting the greenback. But the index showed a downward trend in April and May, dropping from 64 points to 60 points. A slight decline is also expected in June - to 59.5 points. The trend is important here, which (so far) is not in favor of the US dollar.

Nevertheless, the most important event of the week will be the Nonfarm payrolls report, which will be published on Friday, July 2. It is worth recalling here that the key components of the previous release were significantly better than forecasts. The US unemployment rate for the first time since March last year fell below 6 percent (the indicator entered the green zone, reaching the target of 5.8%), and the average hourly wages jumped to 2% (in annual terms). According to the general forecast, June Nonfarm will also show strong results. The employment growth rate should rise to 650,000, and the level of average hourly wages on an annualized basis may rise to almost 3 percent. The unemployment rate, in turn, should drop to 5.5%.

So, a busy and rather volatile trading week awaits us, which will allow EUR/USD traders to leave the 1.1850-1.1950 range. In this case, the euro is in a more advantageous position, since the growth of key macroeconomic indicators (primarily, we are talking about inflation) can strengthen the position of the hawkish wing of the European Central Bank. At the same time, the dollar is driven into a kind of trap: The US Nonfarm should come out better than expected (with strong enough forecast values) to provoke a dollar rally. The American economy should "keep the bar high", in line with the corresponding expectations of dollar bulls, experts and members of the Fed. Any deviation from the set tempo will be interpreted against the greenback.