Dollar Eases After Fed Pivot Talks Emerge
EUR/USD at Resistance Ahead of Key Data for Both Currencies
A speech delivered Friday by San Francisco Fed President Mary Daly sparked speculation that the Fed is preparing for a pivot in its monetary policy. This loosened the US Dollar’s clinch on the Euro and other major counterparts but we shouldn’t expect an immediate policy change.
According to the San Francisco Fed President, the central bank shouldn’t put extra stress on the economy but “the time is now to start talking about stepping down. The time is now to start planning for stepping down”. She added, “it’s really challenging to step down right now … We are not there yet”.
Later this week an important U.S. inflation gauge will be released and considering Daly’s comments, we are likely to see a strong reaction from the US Dollar. The ECB is also meeting this week to set the interest rate, so we are probably in for a wild week.
Key Data for the Week Ahead
Tuesday at 2:00 pm GMT the U.S. Consumer Confidence survey will be released and expected to drop from the previous 108.0 to 105.7. This survey of about 3,000 households acts as a leading indicator of consumer spending, which in turn represents the majority of overall economic activity.
Wednesday at 12:15 pm GMT, the ECB will announce the interest rate, which is currently at 1.25% and is expected to climb to 2.00%. Their Monetary Policy Statement will be released at the same time and will probably offer forward guidance (clues about the pace of future rate hikes). The ECB press conference is scheduled at 12:45 pm GMT and will probably trigger increased volatility.
Also Tuesday, the U.S. Advance GDP comes out. This is the main gauge of an economy’s overall performance and the Advance version is the most important. The other two versions (Preliminary and Final) are also important but the Advance tends to have the most impact on the markets because it’s the earliest. The time of the release is 12:30 pm GMT.
Friday at 12:30 pm GMT we take a look at one of the Fed’s main inflation gauges: the Core PCE Price Index. It differs from the CPI (which was released about 10 days earlier), as it only takes into account goods and services consumed by individuals. The expected reading is 0.5%, a small change from the previous 0.6%.
Technical Outlook – EUR/USD
The pair is currently trading at 0.9830 after an almost perfect bounce at the 50-day Moving Average and the long-term bearish trend line seen on the chart below. However, the upper Bollinger Band and the horizontal resistance at 0.9959 were not touched yet, thus we may see a continued move up until those elements come into play.
Despite the recent moves up, the US Dollar is still in control and the downtrend is going strong. Although a higher low has been created, we still don’t have a significant higher-high and all the resistance elements are intact.
As long as the pair remains below the moving average, the trend line, and the resistance at 0.9950, the outlook is bearish, aiming for the lower Bollinger Band.
