The daily chart of the EUR/USD pair reminds me of a grand piano, where white keys are replaced with black ones. During the first week of 2023, the initiative changed hands: bullish daily candlesticks were replaced with bearish ones, and vice versa. Formally, the round ended in favor of the bears: last Monday trading started at 1.0704, and on Friday it closed at 1.0645. But de-facto it is possible to speak about the equal confrontation, as neither of the parties could develop/hold their success. Bulls couldn't stay within the 7th figure, bears couldn't consolidate in the area of the 4th price level (though the low of the week was 1.0485).

And yet, despite the actual "draw," last week was marked by an important moment, in my opinion: the dollar reasserted itself. Not as successful as the dollar bulls would like it to be, but it was quite revealing. Take a look at the pair's weekly chart: almost every candlestick in W1 is bullish since the end of October. The pair systematically moved upward with heavy pullbacks, but overcame the path from the parity point to the seventh figure in several months. But the first week of 2023 breaks the rut, showing that bulls couldn't cross the area above 1.0700. Moreover, bears tried to break above the 4th figure (by the minute, they reached a monthly high). And though this attempt failed, the warning bells for the bulls sounded. Last week's results show that traders have not made up their minds about the price movement vector and it's too early to write the greenback off.

Several fundamental factors played in favor of strengthening the dollar.

Firstly, the Federal Reserve's minutes. The minutes of the Fed's December meeting were published last Wednesday, the rhetoric was very hawkish. The essence of the document is that the central bank does not intend to reverse its hawkish course this year: rates will remain at a high level and will not be lowered until 2024. After that the head of the Kansas City Fed, Esther George, confirmed the Fed's relevant position. She said it would be important for the Fed to keep rates high after they stopped rising. However, she did not answer another question - whether the central bank intends to revise downward the forecast for the final rate. The minutes did not answer that question either, so the release had limited impact on the pair.

Toward the end of the trading week, the Nonfarm was released, which also provided support for the dollar. Almost all components of the data (except the payrolls figures) unexpectedly came out in the green zone - in particular, the unemployment rate dropped to 3.5%. The employment growth figures exceeded forecasts, although overall, we are not talking about any "breakthrough" here. Wage indicators, on the other hand, were really disappointing. Average hourly earnings rose 0.3% in monthly terms. (With a modest forecast of 0.4% growth). In addition, November's increase was revised downward (from 0.6% to 0.4%). On an annualized basis, hourly earnings rose 4.6% in December, while most experts had expected to see an increase of 5.0%.

The wage component spoiled the optimistic picture. That's why the bears could not keep their positions in the area of the 4th figure: after sharply falling to 1.0485, the pair then rose to 1.0645, where it finished the trading week. The ISM service sector index, which fell to 49.6 points (the ISM manufacturing index that was released earlier was also in the red zone), also weighed on the greenback.

The European currency was supported by its own inflation report, though the issue is quite debatable. The overall CPI slowed down to 9.2% (against the forecast of 9.6%, the previous value of 10.1%), while the core CPI - on the contrary - continued its uptrend, rising to 5.2%.

This dynamic correlates with the situation on the energy market: gas prices in European countries is about five times lower than in August 2022. At the same time the sharpest decrease took place during December. At the TTF in particular, prices for February fell to 73 euros per megawatt hour (last August they were as low as 342 euros). This also had an impact on electricity prices, since many European power plants produce electricity with gas. For example, French electricity has surpassed 1,000 euros per megawatt-hour at the end of August, and dropped to 240 euros at the end of last month.

However, despite the decline in overall inflation, the core consumer price index (minus the volatile energy and food prices) continues to gain momentum. Therefore, European Central Bank officials are likely to maintain their hawkish stance, at least in the context of the next meeting.

As a whole now the pair's fate basically depends on the stance of representatives of the Federal Reserve and the European Central Bank (for example, Fed Chairman Jerome Powell's speech is expected on Tuesday, January 10,). Also, the U.S. inflation growth data will be released next week. This will complete the puzzle and either strengthen or weaken the position of the dollar.

Thus, the first week of January proved that it is too early to write off the dollar: the greenback is ready to show its character by reacting to the current information flow. At the same time, traders are not ready to bet on the dollar yet - the successes of the dollar bulls are situational and temporary. All this suggests that market participants need strong information, which will tip the scales in one direction or another. The big event may be the inflation report (Thursday, January 12) and/or the head of the Fed Board's speech (Tuesday, January 10).