The euro-dollar pair in the Asian session on Monday tried again to overcome the support level of 1.1740 (bottom line of the Bollinger Bands indicator on the D1 timeframe), but retreated again, reflecting the indecision of traders. The southern momentum, which was triggered last Friday by strong Nonfarms, did not continue. On the one hand, the eur/usd bears were able to change the price echelon, dropping into the area of the 17th figure, while during the previous week they traded in the corridor of 1.1830-1.1900. On the other hand, the sellers of the pair could move to the area of the 16th figure, thus marking new price horizons. But the blitzkrieg failed: traders settled for the 100-point decline and took profit waiting for the next information drivers.

Last week, key data on the U.S. labor market was released. This is one of many releases that determines the mood of Fed members, experts, and market participants. The greenback passed the "test": all components of the Nonfarm payrolls came out in the green zone, once again confirming the strength of the U.S. labor market, which is recovering at an outpacing pace. The unemployment rate in the US fell to 5.4% (i.e. to pre-crisis levels) and the employment growth rate jumped to nearly a million (943,000). The value of the previous month - June - was revised upwards (938 thousand instead of 850). Wages and salaries also showed positive dynamics - 0.4% on a monthly basis and 4.0% on an annual basis. Private sector and manufacturing employment figures were in the "green zone".

In other words, Friday's data reinforced the likelihood of a "hawkish scenario" where the Fed would start to roll back QE before the end of this year and raise interest rates at the end of next year (with another hike in 2023).

Very soon - on August 28 - a large economic symposium will be held in a small American town of Jackson Hole. Fed Chairman Jerome Powell will also speak at the event and is expected to give the first hints regarding the winding down of the stimulus program. After the Nonfarms release, hawkish expectations have only intensified, given the prior rhetoric of both Powell himself and many of his colleagues. For example, Fed Vice President Richard Clarida recently said that the regulator would "in the next few meetings" assess progress toward target levels (primarily in labor market and inflation), after which it could notify markets of the impending start of a stimulus program rollback. In this context, it may be noted that the U.S. economy has passed the first "test" - the U.S. labor market continues to recover ahead of schedule. Now it's up to inflation.

That is why the most important release this week will be the U.S. inflation growth data (Wednesday, August 11, 15:30 Moscow time). The June CPI jumped to 5.4% (annualized). The last time the index was at such heights was in summer 2008 (5.6%), and before that in 1991. Core inflation showed similar dynamics.

According to preliminary forecasts, the rate of inflation growth will slow down somewhat in July: the general index should reach 0.5% mom, 5.3% y/y (previous values 0.9% mom 5.4% y/y), and the core - 0.4% mom, 4.3% y/y (previously 0.9%, 4.5%). It should be noted here that the U.S. dollar is in a kind of trap at the moment. Given investors' hawkish expectations, the U.S. economy must "hold the bar high," matching the inflated expectations of dollar bulls, pundits, and Fed members. Any deviation from that pace will be interpreted against the greenback. Therefore, the July inflation release should come out at least at the projected level to prevent the dollar from weakening. Overall, the reaction of dollar bulls will depend on the "single digits" of the release. If all the components fall short of the forecasted levels, the dollar will come under the strongest pressure. Conversely, a greenback would give the dollar bulls a second wind.

On Thursday we will find out the number of initial claims for unemployment benefits. This indicator has been decreasing for the third week in a row and in the light of the latest Nonfarms it is quite important that the indicator will go below 385K (the forecast was 375K) this week as well. Also on Thursday, the U.S. Producer Price Index will be released, which is an early signal of a change in inflationary trends.

Friday is the last week of the trading week with minor macroeconomic indicators that are unlikely to trigger much volatility (inflation data from Italy and Spain as well as sentiment index of American consumers from the University of Michigan).

Yet, despite the plenty of economic reports during the week, the main intrigue in the context of the eur/usd outlook will revolve around the American inflationary release. If the Consumer Price Index comes back above the forecasts, the Fed will have to react accordingly - after all, according to Jerome Powell's expectations, inflation will gradually fade in the second half of the year. If the July CPI proves otherwise, the likelihood of a hawkish scenario will increase again, supporting the dollar across the board, including the pairing with the euro.