Ahead is a busy week for traders of the EUR/USD pair. Informative, and thus – potentially volatile. The focus will be on the U.S. inflation figures for June, the two-day appearance by Federal Reserve Chair Kevin Warsh before Congress, and further developments in U.S.-Iran negotiations following another round of escalation in the Middle East.

Geopolitics

It can be assumed that the new trading week will begin with rising oil prices and a strengthening of the U.S. dollar against the backdrop of recent events in the Middle East. On Sunday, the U.S. Central Command announced a third round of strikes on Iranian targets in response to an attack on a civilian vessel in the Strait of Hormuz. The reason for the attack was a strike on a Cypriot-flagged container ship passing through the strait.

In response, Tehran has again struck U.S. military facilities in the Middle East. In particular, authorities in Qatar, Bahrain, and the United Arab Emirates reported on the operation of air defense systems.

Iran has also announced the closure of the Strait of Hormuz, after which the movement of vessels decreased to a minimum. According to data from the maritime monitoring agency MarineTraffic, only a few vessels passed through Hormuz on Sunday.

It seems that in the coming days, the U.S. and Iran will continue exchanging hard statements, accompanied by limited military actions. Meanwhile, the diplomatic channel will most likely remain open: the parties will continue closed consultations through intermediaries, seeking to create conditions for the resumption of negotiations.

In my opinion, the likelihood of completely abandoning diplomacy now looks lower than the likelihood of its restoration. Both sides have already invested significant political resources in the negotiation process, and the alternative to a truce is a protracted regional conflict with severe economic (and political) consequences for both Iran and the U.S.

All this suggests that in the coming days, the dynamics of EUR/USD will be primarily determined by the degree of risk-averse sentiment in the currency market. If, after another round of escalation, Washington and Tehran return to the negotiating process (as has happened before), traders' attention will quickly shift from geopolitics to macroeconomic agendas. In this case, June inflation data in the U.S. will take center stage—primarily the CPI and PPI reports that could significantly adjust expectations regarding the Federal Reserve's future actions.

Macroeconomic Data

The most important macroeconomic reports for EUR/USD this week will be published in the U.S. on Tuesday and Wednesday. First and foremost, we will learn the June Consumer Price Index (CPI) on July 14. According to most analysts, the overall CPI is expected to slow slightly to 4.0% year-on-year (some estimates suggest 3.9%) after a May surge to 4.2%. This trend will be driven by falling energy prices.

However, the core Consumer Price Index should remain at May's level (i.e., at 2.9%), reflecting ongoing price pressures in the services sector. It is important to note that the dynamics of core inflation will be crucial for market expectations regarding the Fed's future actions. If core CPI comes in at the forecast level or is in the "green zone," the market will solidify its view that the regulator will not rush to lower interest rates in the foreseeable future. Moreover, the possibility of tightening monetary policy in the second half of the year will still be on the agenda. Such an outcome will support the dollar even if the "headline" figure shows a slowdown. Conversely, an unexpected decline in the core index would strengthen "dovish" market sentiment, placing significant pressure on the greenback.

On the following day, July 15, another important inflation indicator will be published in the U.S.: the Producer Price Index (PPI). According to forecasts, the overall PPI will drop to 6.3%, down from a record 6.5% in May. The core index is expected to remain unchanged at 4.9%. Again, regarding the impact on EUR/USD, the core figure will be decisive, allowing us to assess the resilience of price pressures excluding volatile components. If the PPI confirms that producers' exit prices remain elevated, this will provide additional support for the Fed's hawkish position.

In addition to inflation reports, volatility in the EUR/USD pair may be spurred by U.S. June retail sales data, to be published on Thursday, July 16. Following an unexpectedly strong May release, where nominal sales surged by 0.9% (and the control group, directly accounted for in GDP, rose by 0.7%), the June report will show whether this spike was merely an inflationary nominal effect (due to rising gasoline prices) or if consumer activity is indeed maintaining momentum despite the Fed's tight policies. The consensus forecast suggests a slowdown in overall growth to 0.3% (control group – 0.4%). For dollar bulls, it is important that these indicators remain in positive territory, i.e., above zero.

Warsh's Debut in Congress

The two-day appearance of new Fed Chair Kevin Warsh in Congress (Tuesday, Wednesday) will be one of the key events of the upcoming week. Traders will closely watch his assessment of inflation risks, labor market conditions, and the outlook for monetary policy.

Given Warsh's rhetoric at the June Fed meeting, it can be assumed that he will emphasize the persistence of inflation and the need to keep rates at the current level until convincing signs of a slowdown in price pressures emerge. This is the baseline scenario for his speech.

The main intrigue will be whether Warsh signals the Fed's readiness for a more aggressive scenario. If he explicitly allows for a rate hike in the second half of the year, the dollar will receive significant support across markets. Conversely, if he suggests a rapid shift toward easing monetary policy despite forecasts, the greenback will come under strong pressure. It should be noted that this will be Kevin Warsh's first appearance before Congress as the head of the Fed, so any changes in his rhetoric (compared to the June meeting) could increase volatility in the currency market.

"Technical"

The technical picture for EUR/USD indicates a fading downward impulse and a transition to a "consolidation phase" ahead of a volatile week. The daily chart maintains a global bearish trend under the Kumo cloud, but the pair has found local support at 1.1330 (the lower Bollinger Bands line on the D1 timeframe) and is squeezed within the range of 1.1370 – 1.1460. On the four-hour chart, a strong narrowing of the Bollinger Bands signals a decrease in volatility and a compression of the market's "spring," while the intertwining of the Tenkan-sen and Kijun-sen lines confirms a temporary parity of forces between bulls and bears. If risk-averse sentiments strengthen in the market again, and key reports of the week favor the greenback, sellers will break below the support level of 1.1400 (the lower Bollinger Bands line that coincides with the lower boundary of the Kumo cloud on H4) and will attempt to retest the price barrier of 1.1330 (the lower Bollinger Bands line on D1).

An alternative scenario will materialize if interest in risky assets is restored (i.e., if the U.S. and Iran return to the negotiating table) and all components of CPI and PPI slow. In this case, the pair could break out of the wedge above 1.1460 to test the boundaries of the 15th figure.