EURUSD Rises as Market Awaits Central Bank Comments at Sintra Symposium

EURUSD soared by more than 0.4% on Tuesday ahead of the central bank heads' comments at the ECB's Sintra Symposium. The pair apparently heads for a retest of 1.10 after an unsuccessful attempt on June 22, when Powell's remarks in Congress derailed its upward momentum. This marks the third attempt this year to establish a foothold above the 1.10 level:Despite growing imbalances between inflation and other macroeconomic goals (such as output growth for the EU, mortgage market stability for the UK, and the banking sector for the US), markets anticipate a fresh wave of comments suggesting that the current policies are not sufficiently restrictive.Some investors are cautiously exiting the stock market, anticipating an unfriendly tone from top central bank executives. The primary benchmark of the US stock market, SPX, closed yesterday at a two-week low just below 4330 points, while key European indices are approaching monthly lows. Overall, the market remains calm across almost all asset classes. The dollar is weakening against pro-cyclical currencies, as the anticipated boost to the dollar from risk aversion due to events in Russia did not materialize. The battle of central banks against inflation remains a key focus for the markets. Now that the FOMC meeting, FOMC minutes, and ECB meeting have been digested, market volatility will be driven by incoming data. The gap between the importance of primary and secondary economic releases has significantly narrowed, with markets reacting to data that would typically go unnoticed. Central banks have raised rates to multi-year highs, and the markets are paying attention even to weak signals in the data that could indicate the turning point, i.e., the peak of interest rates before the next cycle of monetary policy easing. However, high inflation, relatively robust labor markets, and consumer demand are showing unusual resilience to high borrowing costs, leading to several false "turning points" in the past, making the market more cautious at present. In the near future, the key releases for the US will be the ISM Non-Manufacturing PMI, ADP and NFP employment reports next week, and the June CPI, which will be released on July 12. This week, the market may pay attention to the Conference Board Consumer Confidence Index, May's Durable Goods Orders, and the Richmond Fed Manufacturing Index. Data from the Eurozone is not favoring Euro buyers this week, as signals of economic slowdown in the region are mounting. The IFO Index was lower than expected yesterday, with the Business Climate Subindex declining from 91.5 to 88.5 points, and the Expectations Subindex dropping from 88.3 to 83.6. Taking into account other leading indicators (PMI, ZEW) recently released, it can be concluded that fragility in the EU economy is increasing. Therefore, the ECB is currently walking a fine line by announcing sufficiently aggressive forthcoming monetary measures. As a result, the EURUSD rally could easily be disrupted if hard data such as unemployment levels, export volumes, and consumption begin to weaken.