The euro/dollar pair started the trading week with small correctional growth. Moreover, the price literally moved 10-15 points away from Friday's lows, but even such a minor dynamic speaks volumes.
First, the market doubts that the Fed will maintain the status quo this week from good Friday releases, particularly the industrial production and retail sales. Traders' confidence in this plan prevailed, therefore the pair opened the Monday session with a downward gap around the 11th figure. Of course, the pressure on the pair will continue primarily due to the growth of anti-risk sentiment and the rather strong dollar position. However, before the Fed meeting, one can hardly expect a downward impulse movement but not all currency strategists agree that the American regulator will keep a wait and not announce a rate cut.
It should also be noted that the Fed meeting is far from the only one, although it is a key event of a fundamental nature this week. Quite important macroeconomic reports are comments by Mario Draghi and details of the ECB Economic Bulletin, which can also influence the dynamics of the EUR/USD pair. In this regard, Monday is almost empty; perhaps, the interest is on the monthly report of the Bundesbank. But from Tuesday, there will be quite interesting releases.
On June 18, we will find out the final estimate of the growth of the consumer price index in the eurozone. According to initial estimates, European inflation slowed down with the overall CPI fell to 1.2% from 1.7% in April and the core index immediately dropped to 0.8% from the previous value of 1.3%. According to consensus forecasts, the overall CPI will remain at the same level, but core inflation will be revised upward to 0.9%. In contrary to forecasts, if the indicators are revised downward, the euro will be under very strong pressure. After the last inflationary release, rumors appeared on the market that the European Central Bank could use one of the monetary policy easing tools. According to some experts, the ECB will resume the stimulating program while others think the regulator will lower the rate further into the negative area.
However, the head of the ECB will also be able to comment on these rumors. On Tuesday, Mario Draghi will speak twice at an economic conference in Portugal. The Central Banking-2019 forum is dedicated to the 20th anniversary of the monetary union, hence, Draghi will certainly touch on the topic of monetary policy prospects. By the way, the head of the Bank of England Mark Carney will speak at the same forum.
Also, reports from the ZEW Institute will be published on Tuesday. We will learn about the sentiment indices in the business environment of Germany and the entire eurozone. I recall that the German index in April came out of the negative area for the first time since March 2018 and reached an annual maximum of 3.1 points. However, the indicator again dropped below zero to the level of -2.1 points in May. According to the forecasts of most analysts, the negative trend will continue and the indicator should drop to -5.7 points. A similar situation exists with the pan-European index. After the April surge of optimism, the indicator returned to the negative area. The June result is also likely to show a worsening situation given the grim prospects for Brekzit and the escalation of the US-China conflict.
On Wednesday, the market will focus only on the outcome of the Fed meeting. If we talk about macroeconomic statistics, you can pay attention to the German producer price index, which is an early indicator of inflation trends. But in the light of US events, this release will almost certainly be ignored by the market.
The ECB Economic Bulletin will be published on Thursday. This document is published two weeks after the meeting of the regulator. Moreover, it has a limited impact on the pair. During this time, traders could repeatedly hear not only Mario Draghi but also other representatives of the European Central Bank. However, this ECB protocol is interesting in another aspect. According to American journalists, some members of the European regulator do not share the opinion of their colleagues about the recovery of the eurozone economy in the second half of this year. In their opinion, the economic forecasts of the Central Bank are too optimistic since the slowdown in China's key indicators and trade conflicts will continue to have a negative impact on the growth dynamics of Europe.
They also questioned the accuracy of the predictive models used by the regulator. In their opinion, this model gives a distorted picture and does not fully take into account the revised macroeconomic indicators. This information has alarmed market participants. If the ECB protocol confirms their concerns, the euro will be under considerable pressure. According to experts, if the regulator revises its forecasts or the formula for calculating forecasts then the probability of monetary policy easing will increase in many ways. But here, we should not forget that on the eve of this release the head of the ECB, Mario Draghi, will speak. If it negates investors' concerns in this context, the Economic Bulletin will be ignored by the market.
On Friday, PMI indices will be published in Europe. We will find out preliminary estimates of the indices for June. It is noteworthy that according to forecasts in Germany, France, and the eurozone, the business activity index as a whole should grow in both in the manufacturing sector and in the services sector. If these assumptions become a reality, the single currency will receive quite a strong support.
For this trading week, the central event of the trading week is the Fed meeting. Its results will determine the vector of movement of the dollar and, therefore, the EUR/USD pair. The remaining fundamental factors will play a supporting role, "helping" the euro to resist the domination of the greenback or clearing the way upward towards the region of the 14th figure.
