EUR/USD: this Friday's Euro Summit is likely week's trading highlight

Europe is facing one of the most difficult periods in its history. The virus has ravaged the old continent, which has recently entered a new wave of infections.

The vaccine campaign is a complete disaster compared to progress in other parts of the world, and citizens are paying the price. As such, the Euro summit at the end of the week is crucial to send a message of stability and unity as the European Union appears to be weakening by the day.

News from Turkey over the weekend did not help. Turkish President Erdogan ousted the head of the central bank and the news sent shivers through European stock markets. The problem is that European banks are exposed to Turkey and other emerging markets and instability in the region also creates instability within the EU.

Fed speeches will move the dollar

The upcoming trading week is full of speeches from Fed members. For example, Fed Chairman Jerome Powell will be giving a speech, as he is scheduled to participate in an online event organised by the Bank for International Settlements (BIS).

Last week, the Fed struggled to explain to financial market participants why it is maintaining accommodative monetary policy when the economy is recovering much faster than expected and inflation is rising. Judging by the way the markets reacted to the Fed's announcement, it appears that the Fed did an excellent job of communicating its intentions, but long-term yields have once again turned upwards, putting the Fed under pressure.

The Fed's Powell will testify this week before the House Financial Services Committee on the CARES quarterly report. Janet Yellen, the US Treasury Secretary, will accompany him, so the dollar is likely to be on the move today and Wednesday when the testimony is scheduled.

Tomorrow, PMIs in Europe will tell market participants whether the economic recovery is continuing or stalling. The focus is on manufacturing PMI data, as the services sector remains depressed due to the confinement of many European economies.

The week ends with the EU economic summit. Leaders meet to discuss the response to the pandemic, but also the situation in the Eastern Mediterranean and relations with Russia. Overall, expect a volatile week with many events likely to move markets.