The technical situation on the weekly EURUSD chart remains little changed over the past month or so. The pair is in consolidation since the low in mid-May at around the 1.0350 level.

Two further attempts on the 1.0350 support were rejected in recent weeks but without any strong bullish signal. Thus, the trend here remains down, and a break below 1.0350 should give the signal that the trend is ready to continue.

To the upside, the 1.08 and 1.10 zones are strong resistance. As a result, any retracements higher are likely to hit a wall at these resistance zones. To the downside, below the 1.0350 low, Fx traders will watch the parity level (1.00) as the target area for short EURUSD positions.

The US dollar remained in consolidation last week, but we could see some breakouts this week. It’s a new month, a new quarter and the 2nd half of the year. Quarter-end rebalancing flows are over and the market may resume trading on fundamentals. And here, the dollar stands to gain, underpinned by a still robust economy and hawkish Fed. The US energy independence while the world is battling the biggest energy crisis in decades also helps drive capital to the ultimate safe-haven currency, the greenback.

In line with this, the USD bullish trend remains intact, and an eventual extension higher (in the DXY index) seems like the probable scenario. This week, traders will focus on the ISM services and FOMC meeting minutes due on Wednesday, while the main focus will be on Friday’s Nonfarm payrolls and jobs reports. 

The FOMC minutes will be scrutinized for hints about the size of the rate hike at this month’s meeting (whether 50bp or 75bp). On the data front, a healthy ISM services report and strong NFP job creation could provide the needed boost for the dollar to make an upside breakout. On the other hand, a miss in forecasts could result in the dollar staying in the consolidation range. 

It’s worth noting also that moves in other markets like stocks and bonds will continue to have a big impact on Forex. With a resolutely hawkish Fed, risk sentiment is set to remain fragile, which means we could see more bouts of risk aversion across markets. Ultimately, if that happens, it would still be USD bullish even if US economic data misses expectations. So, in this regard, even if this week’s reports on the calendar aren’t great, that is unlikely to be a reason for an end to the dollar uptrend.

A closely-watched event last week was the central banking forum in Sintra Portugal, hosted by the ECB. Fed Chair Powell, ECB’s Lagarde, and BOE’s Bailey agreed that more rate hikes and monetary tightening are needed to control inflation. Powell’s comment that “the negative risks of not dealing with high inflation are greater than causing a recession” gained the most attention in the news. 

All in all, this firmly hawkish stance of central bankers increases the chances that we will get a recession later this year. On this front, Europe is the most vulnerable due to its proximity to the Russo-Ukrainian war and its dependence on Russian gas. The Eurozone is likely already in recession, and if Russia cuts gas supplies fully, that recession will only get more severe. This is why the ECB can’t and won’t need to be as aggressively hawkish as the Fed. And this is why the EUR can’t get much support from speculation about ECB hawkishness.

On the economic calendar last week, Eurozone CPI inflation was mixed, but the good news was that the core CPI printed 3.7%, notably lower than the consensus forecast of 3.9%. This is another testament to the much weaker economic fundamentals of the Eurozone compared to the US. For instance, core CPI inflation in the US is running at 6.0%. The Fed is in a much greater hurry to hike rates than the ECB. Thus, the euro is likely to stay under pressure, particularly against the strong dollar, with high chances that EURUSD will reach the 1.00 zone this year.

The EUR calendar is quiet this week, which means the euro will continue to trade on external factors like risk sentiment and global demand for dollars. Developments with Russian gas supplies will continue to be one of the main factors. Here, the markets are increasingly worried that  Russia will completely halt gas supplies soon. This would be bearish for the euro and would likely lead to an extension of the downtrend.