The tops can't, the bottoms don't want to. A revolutionary situation has developed in the EURUSD pair, and it is preparing for a storm. However, the market is completely calm, which allows investors to sharpen their swords. Indeed, weak data on the US economy increased the likelihood of a recession, forcing the futures market to expect an increase in the federal funds rate to 3.31% instead of 3.51% a week earlier. The bears simply do not want to attack, worrying that a lot of positive things have already been taken into account in the dollar exchange rate. Can the bulls organize a correction?

The European Central Bank faces an extremely difficult task. It cannot tighten monetary policy too quickly without solving the fragmentation problem. In addition, the risks of recession in the eurozone are even higher than in the United States. The bulls on EURUSD should keep in mind that at one not very good moment Moscow will simply turn off the gas. The contribution of oil and natural gas prices to the CPI growth in Europe is significantly higher than in the United States. As a result, the ECB should rely even more on factors that it does not control than the Federal Reserve.

Dynamics of inflation in European countries

According to Bloomberg experts, consumer prices in the eurozone will reach a new record high of 8.5% in June. The Bank for International Settlements urges the ECB and other central banks not to be shy and raise rates, however, if ECB President Christine Lagarde and her colleagues go too far, a soft landing for the economy of the currency bloc will not be seen as their ears. As a result, investors draw parallels from 2011, when, after rising borrowing costs, the ECB had to reduce them soon.

At the same time, there is a lot of talk in Forex about a repeat of the debt crisis of 2011-2012. With its emergency meeting and pledge to create an anti-fragmentation program, the Governing Council defused the situation by pushing Italian bond yields below the psychologically important 4%. However, who said that the sale of European debt will not resume again?

Italian bond yield dynamics

Along with the release of data on European consumer prices and the US PCE, investors will be closely watching the meeting of central bankers in Sintra, Portugal. Five years ago, Mario Draghi's high-profile statements about the normalization of the ECB's monetary policy became one of the drivers of the EURUSD rally by 14% for the year. Perhaps Lagarde will be able to shake the financial markets with something?

EURUSD, daily chart

EURUSD, hourly chart

Technically, on the EURUSD daily chart, consolidation is in the range of 1.045-1.06 and does not seem to stop. Only a breakthrough of resistance at 1.06 will help clarify the situation, however, there is a high probability that the bulls will not be able to break through the area above the reference level of 1.0625 and the upper line of fair value at 1.0695. Rebound from them can be used for short positions. On the hourly time frame, the bulls' inability to take the pair outside the range of fair value 1.05-1.057 is a sign of their weakness and a reason to open shorts.