EUR/USD. Week Preview. Buckle up, price turbulence expected

The EUR/USD pair failed to consolidate within the 7th figure by the end of the past week: at the end of Friday's trading, EUR/USD bulls organized a small but swift counter-attack, which led the price to rise to the level of 1.0804. The corrective pullback was due to a weakening of the US currency, which came under pressure against the backdrop of Jerome Powell's cautious rhetoric.

The Chairman of the Federal Reserve suggested that the May rate hike could be the last in the current monetary policy tightening cycle. This unexpected plot twist unpleasantly surprised dollar bulls, after which the greenback fell across the market. Under other circumstances, this fundamental factor would have had a strong impact on the dollar for a quite long time. But under current conditions, Powell's "dovish" comments may take a back seat. The focus is on the political confrontation between Republicans and Democrats, whose inability to reach an agreement could lead to a default on the US national debt.

There is no doubt that this topic will be the "number 1 issue" for all dollar pairs. All other fundamental factors will take a back seat - including Powell.

Biden raises the stakes
Exactly one week ago - May 14 - the President of the United States announced that negotiations with Congress on raising the debt ceiling are "progressing," and more about their progress will be known literally "in the next two days". At the same time, he emphasized that he is optimistic about the prospects of reaching a compromise. In anticipation of the next round of negotiations, assistants to the President of the United States and the Speaker of the lower house of Congress, Kevin McCarthy, began to form a "road map" to curb federal spending in order to resume negotiations on raising the debt ceiling.

The negotiations indeed took place - but ended in failure. The parties just "agreed to agree", but no more. Now the situation is up in the air. Another round of negotiations should take place after Biden completes his visit to Japan, where the G7 summit is being held. At the same time, the head of the White House canceled his planned visit to Australia, which speaks to the seriousness of the situation.

Analysis are provided by InstaForex

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