A Stormy Week Ahead: CPI, Rates, CB Meetings, and More
The Dollar Shows Recovery Signs: Bearish Divergence in Play.
Buckle up for a wild ride on the Forex Sea, because the next 5 trading days are packed with everything that a volatility trader wants and needs. From U.S. inflation data to retail sales and interest rates, to the ECB Meeting and press conference, this week has it all, thus we should expect to see a lot of back and forth on the charts.
Both the Fed and the ECB are expected to hike their respective interest rates by 50 bps this week but it will be interesting to see if they open the door for 25-bps rate hikes for their next meetings. Inflation pressure is still high and the ECB will likely keep adding 50 bps for a while, especially because they started later than the Fed.
Key Data for the Week Ahead
Tuesday at 1:30 pm GMT we take a look at U.S. inflation with the release of the Consumer Price Index (CPI) and Core CPI. The core version excludes food and energy from the calculation and is the Fed’s preferred inflation gauge. It is usually a huge market-mover, so make sure you don’t miss this release.
Wednesday at 7:00 pm GMT, the FOMC will release the Economic Projections and a Statement that contains the interest rate decision. As discussed above, the expected increase is from the current 4.00% to 4.50% but surprises can always happen. At 7:30 pm GMT, Fed Chair Powell will hold the customary press conference. Keep an eye out for any clues regarding future monetary policy moves.
Thursday at 1:15 pm GMT, the ECB will announce the interest rate (current 2.00%, expected 2.50%) alongside the Monetary Policy Statement. At 1:30 pm GMT, the U.S. Retail Sales come out and at 1:45 pm GMT, ECB’s President Lagarde will begin her press conference.
The last day of the trading week will be sprinkled with European PMIs, namely the French and German Services and Manufacturing PMIs at 8:15 am GMT and 8:30 am GMT. The final release of the week will be the U.S. Services PMI, scheduled for 2:45 pm GMT.
Technical Outlook – EUR/USD
The pair has been climbing strongly since early November and it looks like it’s time for a retracement. It is currently trading at 1.0525, at the top of the Daily Bollinger Band, and is approaching the resistance at 1.0635.
The Relative Strength Index touched its overbought level on November 11 and although the pair continued to climb, the RSI did not pierce above the 70 level (overbought) and did not make a higher high. This is a form of bearish divergence, which is usually a pretty solid sign that a move down will follow.
If the bearish move starts to materialize, the first target will be the middle of the Bollinger Bands, followed by the support at 1.0350 and the lower Bollinger band. Any upside movement should be capped by the resistance at 1.0635 but keep in mind that this week, the technical side will be overshadowed by the fundamentals.
