Events in Russia over the weekend went unnoticed in the broader market, with no increased demand for safe-haven assets observed. US Treasury short-term bond yields traded 1-2 basis points lower than the opening level, while oil prices lost momentum in Asia. The stock market during the Asian session also showed no significant signs of risk aversion. The dollar retreated after the US dollar index reached the 103 level, but the hawkish comments from Fed Chair Powell last week still have the market looking for confirmation of his hints regarding two rate hikes in incoming data. Defensive currencies such as the Swiss franc and Japanese yen are trading without much investor interest.

The main theme in the market remains persistent inflation pressures in developed countries and reaction function of the global central banks. Officials are trying to prepare markets for the possibility that restrictive policies may persist longer than currently anticipated. Another convenient opportunity to convey this message will be the annual symposium in Sintra, which will take place this week and gather officials from major central banks. There is a risk that officials from other central banks will follow Powell's example in Congress and also make hawkish comments, which could threaten the rally in risk assets. Additionally, this means that a strong inversion of bond yields (with short-term yields significantly higher than long-term yields), which is a major bullish factor for the Japanese yen, will persist in the market:

In addition to Powell's extra comments this week, market turbulence may be caused by the US inflation report (PCE) to be released on Friday. Monthly inflation is expected to be 0.4%, which should support the hawkish narrative of the Fed.

On Friday, a rather weak set of business activity PMI data was published in Europe, where monthly activity in the services sector was as concerning as in the manufacturing sector. EUR/USD reacted with a 50-pip decline after the release. Germany's IFO report for June, which was also published today, did not meet expectations, but EUR/USD seems hesitant to react, possibly awaiting news from Sintra.

At first glance, the situation of central banks needing to maintain higher rates for an extended period does not bode well for the pro-cyclical euro. However, the hawkish ECB policy serves as a defense against high US interest rates and has brought EUR/USD back above 1.09. It will also reinforce expectations of at least two additional 25-basis-point rate hikes (in July and September) and may provide some immunity to the Euro against expectations of ECB policy easing in 2024

The current environment suggests a continuation of trading within the range of 1.0850-1.1000 for EUR/USD, and the favorable scenario of a soft slowdown in growth/more dovish Fed policy appears to be delayed.

On the 4-hour chart, the EUR/USD pair remains in a clear ascending trend, but the 1.10-1.1050 area remains a significant yearly resistance where the rally has already stalled three times this year:

Considering a potential dollar rally it is worth paying attention to a breakout of the 1.1050 level. In this case the bullish target will become the 1.12 level. A compelling buying point for the medium term, based on the chart above, is the intersection of the price with the lower boundary of the ascending channel (1.08-1.0750 area).