The euro/dollar pair continues to "wander" within a wide price range, impulsively reacting to the current flow of information. North/South impulses emerge/dissipate within a single trading day. Then the cycle repeats. But essentially, the pair remains stagnant despite relatively strong intraday volatility. This situation will persist until the June meeting of the Federal Reserve, the results of which will be announced next Wednesday, June 14. Traders are in no rush to open large positions, neither in favor of nor against the dollar.
Let's take the price dynamics of EUR/USD from yesterday as an example. The pair actively declined in the first half of the day, reaching 1.0675. However, at the start of Monday's US session, the price turned around by 180 degrees, ending the trading day at 1.0713. The cause was the ISM Non-Manufacturing Purchasing Managers' Index, which unexpectedly entered the "red zone." Instead of the expected increase to 52.6 points, the index sharply declined to 50.3 (the weakest result since December of last year). The fact is that the ISM Manufacturing Index, which was published last week, also disappointed significantly, dropping to 46.9 points. The indicator has remained below the key 50-point mark for seven consecutive months. The underlying data showed that the inflation of production resources decreased more rapidly compared to earlier forecasts, and the number of jobs decreased (the employment index fell from 50.8 points to 49.2).
As a result, the dollar surrendered its positions across the market yesterday, including against the euro.
However, the buyers of EUR/USD could not sustain their northward momentum. After reaching a local high today (1.0733), the pair turned south again and returned to their previous positions, around the midpoint of the 6-figure range. The report on retail sales volume in the Eurozone was the formal reason for the downward surge. The monthly indicator came in at 0.0%, while the forecast was for a 0.2% increase. On an annual basis, the sales volume decreased by 2.6% against an expected decline of 1.8%. Such a weak report, released before the ECB meeting in June (June 15), disappointed EUR/USD traders.
Furthermore, the greenback started gaining momentum in the market: the US Dollar Index began rising in the second half of the day, recovering the losses suffered earlier.
Traders refrain from taking risks
As we can see, on Tuesday, the EUR/USD pair mirrored the price trajectory of yesterday. An upward movement follows a decline, and a decline follows growth. Moreover, all these wave-like movements occur within the price corridor of 1.0650-1.0750 (the lower line of the Bollinger Bands indicator on the four-hour chart matches the upper boundary of the Kumo cloud in the same timeframe). This indicates that traders are unwilling to leave this range, using formal reasons to close long or short positions.
For example, today's information trigger (decline in retail sales in the Eurozone) has a truly formal nature, as the rhetoric of ECB representatives has noticeably toughened recently – even despite a significant decrease in the May Consumer Price Index in the Eurozone. In particular, Christine Lagarde stated yesterday the need to continue raising rates because "there is no clear evidence that core inflation has reached its peak." Another ECB representative, Klaas Knot, supported Lagarde's position and emphasized that the central bank will continue to tighten policy until inflation returns to the target level of 2%. Previously, several other European Central Bank officials voiced similar hawkish views, announcing further interest rate hikes.
But buyers of EUR/USD are not rushing to push the upward momentum, considering the dollar, which is awaiting the Federal Reserve's June meeting. After all, as demonstrated by the Reserve Bank of Australia today, central banks are still capable of surprises – including hawkish ones. It should not be forgotten that several Federal Reserve members in May advocated further tightening the policy parameters. Among them is Dallas Fed President Robert Kaplan, who stated that incoming data "support a rate hike at the next meeting." This position has been echoed in one form or another by other American regulator representatives, such as Loretta Mester, Thomas Barkin, Raphael Bostic, and John Williams.
It is important to note that currently, there is a so-called "quiet period" during which Federal Reserve members are not allowed to voice their assessments and comments publicly. Therefore, traders are forced to interpret American macroeconomic releases independently. Judging by the price dynamics resembling a "tug of war," market participants are not certain that the Federal Reserve will implement the baseline scenario, which assumes the maintenance of the status quo, next week.
Conclusions
The current fundamental background does not contribute to developing a one-sided movement to the south or the north. Most likely, the EUR/USD pair will continue to trade within the range of 1.0650-1.0750 in the coming days, bouncing off the boundaries of this price corridor.
