Against a nearly empty economic calendar, the euro/dollar pair fluctuates near the 1.0500 level. Both buyers and sellers are uneasy in the vicinity of the fifth figure and its framework, respectively. Given the contradictory fundamental picture for the EUR/USD pair, neither side is willing to take a big risk by opening positions both for and against the dollar. In advance of the December Fed meeting, the situation is uncertain. While traders respond to the latest information signals, the northern and southern impulses almost immediately disappear without developing.
For instance, after the publication of data on the expansion of the US index of business activity in the service sector from ISM at the start of the week, buyers were compelled to pull back from the boundaries of the sixth price level. The bears could plan a brief counterattack when the indicator appeared in the green zone. Most experts expected the index to decline to 53.0 points, but it increased to 56.5 points. The index of paid prices, which measures inflation in the report, dropped to 70 points. The majority of experts anticipated an increase to 73.6 at the same time. Compared to the previous value of 49.1, the employment index increased to 51.1, while the new orders index decreased to 56. In response to this information, the pair fell to the fifth figure's base and then to 1.0480. However, the southern impulse began to weaken at this point.
A mirror circumstance emerged on Tuesday. Buyers of the EUR/USD attempted to break through the 1.0500 level in response to the German industrial report. In the German industry, orders increased by 0.8% (monthly), with growth expected to reach 0.2% (the volume decreased by 2.9% in the preceding month). The indicator also displayed a positive result in annual terms, showing a decrease of 3.5% rather than the anticipated decline of 7.5%. The EUR/USD pair increased to 1.0533 due to this release, but it dropped to the fourth figure during Tuesday's US session.
However, buyers of the EUR/USD have justifications for a northern march today. The final economic growth statistics for Europe were updated to show an increase. Thus, based on final calculations, the third quarter's GDP volume increased by 2.3% annually and 0.3% quarterly (compared to an initial estimate of 2.1%). Additionally, the indicator for growth in the workforce was revised upward. Bulls on the EUR/USD were able to re-enter the area of the fifth figure thanks to this release.
But it is clear that to "cut the Gordian knot," that is, to either move above the 1.0600 level or back to the 1.0250-1.0400 range, both buyers and sellers of the pair need a stronger information occasion.
The pair will remain in limbo until the December Fed meeting's results are public or until December 14. Even the report on the rise in US inflation that will be released on December 13, the day before this event, will be seen through the lens of the December Federal Reserve members' meeting. Of course, if the report is negative, there will be no question that the US regulator will slow the pace of tightening monetary policy this month and possibly limit future rate increases to 5%.
Remember that the October inflation report had a "red zone" result for every component. The dollar will be under the most pressure if the November report follows the same trajectory as the October one because traders will simulate the implementation of the "dovish" scenario before the results of the Fed meeting are made public.
However, the Fed will have the final say in this matter if the inflation report shows contradictory dynamics (for instance, the general CPI will continue its downward trend while the base one resumes growth).
The conditionally "dovish" language of Fed officials, who in one way or another acknowledge the possibility of a slowdown in the rate hike, has recently attracted the attention of EUR/USD traders. However, market participants also need to consider the other side. Jerome Powell has stated numerous times over the past few weeks that "the speed of the rate increase is not as important as a result." Please permit me to remind you of this. He stated this in addition to his main message – that the marginal level of the discount rate "will be higher than expected."
It's also important to remember that Powell stated the need for additional rate increases, "even if the inflation rate starts to slow down," in response to the outcomes of the November meeting.
The Fed chairman reiterated the points mentioned above during his most recent speech (last week), but the market focused only on the "dovish" cues. The release will be public the day before the Central Bank meeting. If November's inflation turns out to be in the "green zone," the regulator may tighten its language. Additionally, the Fed may stop a 2022 rate increase of 75 basis points.
This suggests that the EUR/USD pair is likely to trade in a broad price range between 1.0390 and 1.0570 in the near term (before the Fed meeting).
