The EUR/USD pair continues to trade within the 1.1150 - 1.1250 range, impulsively reacting to the current news flow. Economic reports have a weak (short-term) impact on the greenback, while Federal Reserve officials are forced to remain silent due to the so-called "blackout period" (Federal Reserve staff, generally do not speak publicly between a week prior to the Saturday preceding a Federal Open Market Committee meeting and the Thursday following that meeting). As a result, an absence of influential information - the main events of past weeks have already been played out by the market, and the key events of the current month are still ahead. In such an uncertain environment, EUR/USD traders exercise caution and refrain from opening large positions - neither in favor of the dollar nor against the US dollar.
However, in this case, the term "uncertainty" is not entirely accurate. For example, we are confident about one thing regarding the possible outcomes of the July meetings of the Federal Reserve and the European Central Bank - traders are almost certain that the central banks will raise interest rates by 25 basis points. Data from CME shows that analysts have a 99.8% chance of a Fed 25-point rate hike this month. As for the ECB, in this case, ECB President Christine Lagarde guarantees monetary tightening at the July meeting, seeing as she announced this decision back in June. This is also confirmed by the minutes of the ECB's June meeting.
In other words, there is no doubt that the ECB and the Fed will make the corresponding decisions next week. However, the central banks' future course of actions are a subject of wide discussion. And this is currently not in favor of the greenback, as inflation in the US slowed down more than expected in June. This fact did not shake traders' confidence that the US central bank will go for a quarter point rate hike this month. But at the same time, there are doubts that the central bank will take further steps in this direction after the July decision. According to the aforementioned CME, the probability of a rate hike at the September meeting is currently 14%, and at the November meeting - 26%.
In addition, the majority of economists surveyed by Reuters (87 out of 106) stated that, in their opinion, the July rate hike by the Fed will be the last in the current cycle of monetary tightening. All 106 economists surveyed by the agency are certain that the Fed will raise rates in July.
Such a disposition puts pressure on the USD. The July rate hike has already been priced in by the market, while all doubts about further tightening of monetary policy are in favor of EUR/USD buyers.
In the meantime, the euro is strengthening its own potential for further growth. In particular, Lagarde voiced rather hawkish theses on Monday, stating that inflation in the eurozone is still above the target level of 2%, and therefore the European Central Bank has "a lot more work to do." As if to confirm her words, the core consumer price index (CPI) for June was revised upwards. According to the initial estimate, the core CPI rose by 5.4% last month. However, according to the final estimate, which was published on Wednesday, the figure was revised to 5.5%. It is worth noting that it is the core inflation that is of particular concern to ECB officials, so such a result is clearly in favor of the euro.
The minutes of the June ECB meeting also supported the single currency. From the text of the document, it follows that the scheduled interest rate hike on July 27th (the ninth in a row since last summer) is likely not to be the last. The minutes indicate that the Governing Council may consider the possibility of raising interest rates "even after July" if necessary.
It is necessary to recall that during her last speech (at the ECB Forum in Sintra), Lagarde cast doubt on further steps towards monetary tightening after the July meeting. But as we can see, the overall stance of the ECB remains hawkish (including from Lagarde's side, who said that there is "a significant amount of work ahead"). This fact provides additional support for the euro.
Thus, the established fundamental background contributes to the EUR/USD pair's prolonged uptrend. However, market participants are clearly cautious - buyers are closing long positions when the price approaches the 1.13 level, and sellers are active when it nears the lower bound of the range (1.1150). Ahead of the July meetings of the Fed and the ECB, traders are trying to "avoid sharp movements" - neither towards the north nor towards the south.
Theoretically, the Fed may surprise investors with its hawkish stance despite the slowdown in inflation. Some Fed officials have maintained a hawkish tone even after the release of the June CPI. In particular, Christopher Waller and Mary Daly have jointly stated that it is too early to talk about victory over inflation: in their opinion, the Fed needs to be aggressive. Whether their opinion is shared by other members of the Committee is an open question (especially against the backdrop of the disappointing ISM index and conflicting Nonfarm Payrolls data).
Considering this disposition, the EUR/USD pair is likely to continue drifting within the range of 1.1150 - 1.1250, in anticipation of key events this month, which will take place on July 26-27.
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