The euro-dollar pair was quiet during the Asian session on Monday: the trading week began without a gap, although the single currency tried to develop corrective growth, inertially continuing Friday's price movement. But anti-risk sentiment does not allow the euro to show character, while the downward momentum of EUR/USD has exhausted itself on the final day of the trading week. The market is waiting for fresh news drivers - either from the external fundamental background, or from macroeconomic reports. In general, this week will be held under the sign of geopolitical tension, amid the release of data on the growth of European inflation and the US labor market. All other fundamental factors will be of a secondary nature.
It is noteworthy that the foreign exchange market did not actually respond to rocket attacks on the so-called green zone of the Iraqi capital - the Baghdad quarter, where the US embassy is located. Although this incident is a continuation of the US-Iran conflict, which was triggered by the assassination of General Kassem Soleimani. The dollar was in high demand at the end of last week amid rising anti-risk sentiment, as traders used the US currency as a defensive tool.
Weekend events did not alarm the market, despite the fact that the conflict itself is still in an active phase. According to the military adviser to the supreme leader of Iran, Ali Hosseini Khamenei, Tehran is preparing a strike on American military targets, and this strike will be "equivalent to the one delivered by the Americans." In response to these threats, US President Donald Trump recalled that any attack by Tehran will receive a "quick, strong and disproportionate response." The head of the White House warned that US forces are holding 52 Iranian targets and are ready to strike at them if Iran attacks the Americans. According to the Pentagon, Tehran has put the missiles on high alert - but it is not yet known whether the increased level of readiness of the Iranian missile forces is defensive or offensive.
It is worth noting that the greenback ignored the verbal exchange of threats - the dollar index began the trading week rather sluggishly, demonstrating a flat movement. Nevertheless, if the Iranian side realizes its intentions, anti-risk sentiment will increase again in the market, providing indirect support to the US currency. If Tehran's revenge is, let's say, "local in nature," then traders will again switch to macroeconomic reports - at least to the most important ones.
The most important reports of the current week are easy to determine - this is the release of data on the growth of European inflation and the December Nonpharma. The general consumer price index in the eurozone has been gradually decreasing since June, and reached its lowest level of 0.7% in October. However, inflation then unexpectedly recovered to one percent, providing substantial support to the euro. Positive dynamics is also expected in December - according to analysts, the indicator will grow to the level of 1.3%. Core inflation should demonstrate similar dynamics - experts believe that the core index will be released in the green zone at around 1.4%. If the indicators come out at least at the forecast level, the EUR/USD pair will get a reason for its growth, as inflation dynamics is under the scrutiny of the European Central Bank. There are certain prerequisites for the growth of pan-European inflation, judging by the growth rate of German inflation. In December, inflation in Germany rose to 0.5% MOM and 1.5% YOY (with a forecast of growth to 0.4% and 1.4%, respectively). The harmonized consumer price index also ended up in the green zone: 0.6% MOM and 1.5% YOY. In monthly terms, the indicators showed the strongest dynamics since April last year. The indicators also reached many-month highs in annual terms, contrary to the neutral forecasts of most analysts. All this suggests that tomorrow's release may pleasantly surprise EUR/USD buyers.
The final chord of the current trading week will be the Nonfarm data. According to preliminary forecasts, conflicting data on the labor market may undermine the position of the greenback. Thus, the unemployment rate should slightly increase - up to 3.6%, against the background of a relatively weak increase in the number of employees (+150 thousand). But here a separate line is worth noting the growth rate of the average hourly wage. Experts anticipate the indicator to recover - in annual terms, it should grow to around 3.1%, and in monthly terms - to 0.3%. If salary data is in the red zone, then it will be difficult for dollar bulls to keep their positions by that time.
Thus, macroeconomic reports most likely this week will be on the side of the bulls of the EUR/USD pair. But now it's impossible to speak unequivocally about the priority of long positions in the pair - first of all, due to the continuing geopolitical tension. If the US-Iran conflict gets a new round of development, the pair may decline at least to the bottom of the 11th figure. The closest support level is located at 1.1060 - this is the upper boundary of the Kumo cloud on the daily chart.
The material has been provided by InstaForex Company - www.instaforex.com