The EUR/USD pair is hovering around the level of 1.2200, not daring to break through the range of 1.2150-1.2270. Traders have been around the same range for three consecutive weeks, taking advantage of the conflicting fundamental background. In fact, both the euro and the dollar have their own flaws and advantages, and their own strengths and weaknesses. This fact does not allow either buyers or sellers of the EUR/USD pair to show their advantage. Everyone is waiting for a powerful information impulse that will determine the vector of price movement. Therefore, market participants are behaving hesitantly ahead of Nonfarm, which is expected to be published tomorrow, and the ECB's June meeting, which will be held next Thursday, June 10.
Despite their indecision, the pair's traders still show their ambitions: the EUR/USD pair has been fluctuating in a wide price range since May 18, but it is actually marking time. As soon as the price approaches the lower limit of the 1.2150-1.2270 range, the bears take profits and the bulls take the initiative. When the pair approaches the upper limit of the range, a mirror situation occurs: buyers do not dare to assault the level of 1.23, closing long positions. As a result, the pair reversed and returns to its original position. For example, the pair showed increased volatility yesterday, trading within the 70-point range. However, traders ended Wednesday's trading day almost at the opening level. Here, we could talk about false price breakdowns – but traders do not even risk testing the borders of the above range. The price impulse is fading even towards the borders of the level. As a result, the pair continues to stay in a wide-range flat, reacting to the current news background.
The current situation is good for short-term trading – the pair is steadily pushing off from the borders of the price range. But if we talk about medium-term trade (and even more so about the long-term time period), then there are certain difficulties. As a rule, such a long-term swing is a kind of prelude, followed by the continuation of the trend or its reversal. If we look at the weekly chart of EUR/USD, it shows that the pair has been within the upward trend since the beginning of April. With small pullbacks, the pair has risen by 500 points in two months – from the base of the 17th figure to the middle of the 22nd. However, the upward movement has stalled in this price area: the W1 chart indicates that EUR/USD has actually stayed in place for the second week – only the upward and downward spires of candles remind us of intra-flight volatility, which is limited to the 100-point range. There is a similar picture in the monthly chart.
In general, the further fate of upward trend depends on the answer to one simple question: who will be the first to decide on the first step towards normalizing monetary policy – the ECB or the Fed? In fact, the whole news stream revolves around this issue. Fundamental factors such as macroeconomic reports, speeches by the Fed and ECB representatives, statements by politicians are viewed through the prism of further prospects for monetary policy.
The position of the US regulator is more massive compared with that of the European Central Bank. Despite the relatively hawkish statements of individual Fed officials (Brainard, Daly), most of the Fed members do not share their point of view. In their opinion, the increase in inflation is a temporary phenomenon. They argue that the surge in inflation indicators is due to the low base of last year. Some of the Fed members (in particular, Harker) also reported that the price increase is also due to problems with supply and production. It should be noted that almost all representatives of the "dovish wing" have been talking about the recovery process while pointing to the failed Nonfarm data that was published last month. That is why tomorrow's release is so important for dollar bulls: either the "hawks" will get another trump card in favor of an early curtailment of QE, or the "doves" will weigh down their position with a strong argument in the form of a slowdown in the US labor market. Given this disposition, it can be assumed that the release of tomorrow's Nonfarm will cause increased volatility, determining the vector of the US dollar's movement in the medium term.
As for the ECB, the "dovish" wing is clearly more opposed by its rival. In fact, a split occurred in the camp of the European regulator: representatives of the "hawkish" wing focus on the recovery of the Eurozone economy, the active pace of the campaign to vaccinate the EU population against coronavirus, improving the epidemiological situation and easing quarantine restrictions. In the context of these trends, some members of the regulator suggested that the ECB may soon decide to slow down the pace of bond purchases, contrary to the previously declared intentions to keep the PEPP program in its current form at least until March 2022. Such rhetorics were voiced, in particular, by Luis de Guindos, Martins Kazaks, Klaas Knot.
Here, it should be emphasized that despite the contradictory rhetoric on the part of the ECB representatives, one should not expect hawkish decisions from the European regulator at the June meeting. The calculation of buyers of EUR/USD is different in terms of the tightening of the tone of the accompanying statement of the European Central Bank following the June meeting. This will be enough to continue the upward offensive, at least in the context of conquering the level of 1.23, especially amid the Fed's "dovish" position.
Despite the general uncertainty and ambiguity, it can be assumed that the Euro currency will take the lead especially if tomorrow's Nonfarm enters the "red zone", disappointing the supporters of a strong US dollar. However, it is best to take a wait-and-see attitude until tomorrow's release due to high risk.
