Trading floors in the US and the UK are closed for public holidays. Americans are celebrating Memorial Day while the Britons are having Spring bank holiday. The fact of two national holidays is making an impact on the dynamic of trading today. EUR/USD has come to a standstill. The pair is trading quietly in a flat market at near 1.2200 within a narrow trading range. Volatility has ebbed away after market turbulence on Friday. The game ended in a draw. Both EUR and USD are taking a pause for breath awaiting another fight.
Let me remind you that at the end of the last week, the US currency asserted strength across the board. The dollar bulls perked up in light of budget proposals from the White House, the hawkish remarks by some Fed's representatives (in particular Mary C. Daly), and a record surge of the core PCE. Amid the greenback's overall advance, EUR/USD dropped to 1.2133, the lowest level in 10 days. However, in the late American session on Friday, the EUR/USD bears lost control over the market. So, traders fixed profits before leaving for the long weekend. Hence, they extinguished the downtrend.
Besides, all the above-said fundamental factors in favor of the US dollar are rather shaky. For example, the ambitious budget draft which implies tax increases has to be approved by US lawmakers. The Republicans have already voted against the draft. The Democrats have the modest majority in Congress, especially in the Upper Chamber, so every vote matters a lot. When it comes to the record PCE growth, this is a truly important factor for the dollar bulls. The indicator of personal consumption expenditures is one of the crucial inflation criteria for the US Fed.
That's why the US dollar received a solid support for its further advance. On the other hand, the Fed's representatives could neglect this indicator like they did with a spike in the CPI. After the PCE report had been released, the central bank assured market participants that the only extreme indicator is not the cause for concern. Besides, sharp inflation acceleration comes as a result of low base effect of the last year.
Nevertheless, Mary Daly is the only Fed official who expressed hawkish rhetoric. President of San Francisco Federal Reserve Bank said that the regulator is at an early stage of discussing when and how they should begin scaling back massive stimulus. However, Mary Daly could not reassure the market of hawkish intentions of the Federal Reserve. The majority of the US central bank still sticks to the dovish stance rejecting the scenario of QE tapering ahead of schedule.
Such a contradictory fundamental background didn't allow EUR/USD bears to insist on the downtrend. On the other hand, EUR/USD buyers also didn't find enough arguments in favor of the uptrend. Therefore, the currency has got trapped in a narrow trading range.
Today market participants were surprised by upbeat inflation data in Germany despite ongoing lockdown measures in the largest eurozone's economy. The CPI extended the uptrend, having increased to 2.5% in May in annual terms. Consumer inflation has been growing for 5 months straight. The indicator was in the green zone month on month. The CPI stood at 0.5% on month, stronger than the expected 0.2% growth. Likewise, the HICP surpassed the forecast both on year and on month. Importantly, German macroeconomic data frequently correlates with pan-European data. So, expectations of inflation acceleration in the eurozone provide EUR with support.
This is not the only bullish factor for EUR. For your reference, Germany's economic expectations index by IFO topped the psychological level of 100 for the first time since February 2018. Business climate indicator also came in the green zone with the appropriate index at 92 points (the best score since April 2019). One more thing, the recent ZEW surveys also were beyond expectations. In particular, business sentiment index for Germany surged to 84, the strongest mark in the latest 20 years. The single European currency found support from PMIs. PMIs for France, Italy, and for the EU all logged growth, thus indicating momentum in the manufacturing and service sectors.
From my viewpoint, EUR/USD is set to trade sideways today on occasion of the federal holiday in the US. Starting from Tuesday, the buyers will reinforce their influence. Another catalyst for the pair is ECB President Christine Lagarde who joined the dovish ranks of ECB officials. She excluded hawkish policy decisions in the coming months. However, a series of factors suggests a further uptrend. Among the factors are positive macroeconomic data in the eurozone, a brisk pace of mass vaccination, easing pandemic restrictions, lower coronavirus rates, and the split among ECB officials. On Friday, the bears made an unsuccessful attempt to conquer 1.2100. In means that long positions are still preferable despite the mixed fundamental background.
Technical analysis indicates that EUR/USD is in between the middle and upper lines of Bollinger Bands at the moment. Besides, the price is exactly on the Tenkan-sen line according to the daily chart. If the currency pair fixes above this line (i.e. above 1.2210), Ishimoku indicator will generate the bullish signal. So, all Ishimoku lines are clustered above the price. From the technical point, in this case the door will be open to the major resistance of 1.2280 (the upper line of Bollinger Bands). Hence, currently it would be a nice idea to open long positions for the near time until 1.2210 or after the price reaches the target of 1.2280.
