By Areena FxThe EUR/USD pair was slightly lower in the forex market during the first half of Monday’s session, with many traders sitting on their hands ahead of big macroeconomic events later in the week. With US GDP and Core PCE pending from the US, and a rate decision coming from the European Central Bank, the volatility of the EUR/USD pair will clearly be on the rise this week, making it the pair of mottos of the week.
- EUR/USD Outlook: US Dollar Extends Positive Start
- The European Central Bank and two other central banks, as well as global PMIs, US GDP and core PCE, will all be forthcoming
- EUR/USD technical analysis and key levels to watch
The US dollar extends its positive start to the year
Last week saw the release of generally better-than-expected US data, which helped reduce expectations of a rate cut in March. As a result, the US dollar closed the week higher against the euro (and a basket of foreign currencies), although off its best levels.
Among other data released in the United States, retail sales beat, while further evidence of the resilience of the labor market was released, with jobless claims falling to their lowest level in more than a year. Forward-looking data was mixed, with the UoM consumer confidence survey rising sharply to 78.8 from 69.7 as inflation expectations eased to 2.9% from 3.1% previously .
Meanwhile, we’ve heard more hawkish talk from Fed officials. In fact, centrist Raphael Bostic was a little more hawkish than expected, like several other of his FOMC colleagues who have spoken out recently.
EUR/USD Outlook: Outlook for the rest of the week
After a quiet start to Monday, things should improve as we progress through the week. There will be three upcoming central bank monetary policy decisions, namely the Bank of Japan, the Bank of Canada and the European Central Bank.
In addition to this, we will have data on market developments, including global PMIs, US GDP and the core PCE price index.
Now let’s talk about the three main relevant data regarding the EUR/USD pair.
European and American PMIs
Wednesday January 24
Concerns about the health of the Chinese and European economies have dampened commodities and indices that rely heavily on them, such as the UK 100, China A50 and Hong Kong 50. In contrast, technology-focused indices, such as the US Tech 100 and Germany 40 performed better due to expectations that the global economic slowdown would lead to a significant drop in interest rates. The latest insights from surveyed purchasing managers in the manufacturing and services sectors will tell us a lot more about how the situation will develop at the end of the year. These Purchasing Managers’ Indices (PMIs) are considered leading economic indicators and are considered more influential by investors. EUR/USD traders will be paying close attention to the European PMI indices, which have been rather mediocre for some time now. A positive response from risk assets would likely be beneficial for the euro at the start of Wednesday’s session. In the afternoon, when the American data is published, the reaction of the American dollar on the forex and therefore of the EUR/USD pair will then depend quite largely on the direction of the surprise.
ECB monetary policy decision
Thursday January 25
Before the European Central Bank (ECB) blackout period, several officials tried to resist the idea of early rate cuts, as did Fed speakers. In the United States, the resistance is mainly due to a relatively robust economy, while in other regions, notably the United Kingdom and the euro zone, central bank officials are grappling with fears about persistent inflation and sustained wage pressures. ECB President Christine Lagarde has hinted that cutting borrowing costs could happen this summer rather than spring, aligning with other ECB officials expressing concerns about inflation salaries. We are waiting for signals from the ECB at this meeting to discern its position. The more cautious and resistant the ECB appears to rate cuts, the more likely the euro is to receive support.
US advanced GDP and core PCE
Thursday 25 and Friday 26
Following the release of generally stronger than expected data over the past two weeks, the dollar has pushed higher, keeping the EUR/USD pair under pressure. The Fed’s tendency to keep interest rates higher for longer has sparked new concerns, after Fed Governor Christopher Waller suggested a measured approach. If GDP reveals renewed strength in the U.S. economy, expectations of an imminent interest rate cut will be pushed back. EUR/USD bulls will look for weakness in US data, including Thursday’s GDP and the following day’s Core PCE. U.S. GDP is expected to grow at an annualized rate of 2.0% in the fourth quarter, compared to 4.9% in the third quarter. The PCE core price index is expected to have increased by 0.2% m/m from 0.1% in the previous month.
EUR/USD Outlook: Technical Levels to Watch
While the ECB resists cutting rates any sooner, the euro has demonstrated better forex performance than currencies like the Swiss franc, whose central bank appears increasingly dovish. However, to make gains against the US dollar, the euro needs rapid and adverse changes in US data. Only then can he regain his momentum and break the 1.10 barrier convincingly. Currently, those bullish on the Euro must focus on protecting the 200-day moving average, a task successfully accomplished in recent sessions, but the lack of bullish follow-through is concerning from a trading perspective. bulls. A potential break below 1.0845 could pave the way for a decline to 1.0815 and then to the December low at 1.0723.