Europe and the U.S. Struggle to Overcome Surging Inflation
EUR/USD Dips Lower. Key Support Targeted
Inflation has been a major concern lately and is the main reason why the Fed decided to hike the interest rate. On the other side of the pond, the ECB has been reluctant to take action but at this week’s meeting, we may see a more hawkish approach coming from the bloc’s central bank.
The market seems to have priced in larger rate hikes from the Fed, with some economists anticipating 50 bps rises at each of the following three FOMC meetings. This increases the importance of the CPI data that’s scheduled to come out this week, where the prediction is for inflation to climb 1.2% (month over month), which would put annual inflation at a staggering 8.5%.
Key Events for the Week Ahead
The first notable release of the week is the Eurozone ZEW Economic Sentiment scheduled for Tuesday at 9:00 am GMT. It is a survey of about 275 German professional investors and analysts that acts as a leading indicator of economic health; the forecast is gloomy, with a drop to -46.5 from the previous -38.7.
Just a few hours later, at 12:30 pm GMT, we take a look at U.S. inflation with the release of the CPI and Core CPI. These are the main gauges of inflation, tracking changes in the price of goods and services purchased by consumers. The Core version excludes food and energy from the calculation. The CPI is expected to climb 1.2% from the previous 0.8%, while the Core version is likely to post the same change as the previous: 0.5%.
Thursday the ECB will meet and release the Monetary Policy Statement, which also contains the Main Refinancing Rate and although the rate will not be changed, we can expect to see a shift in tone and possibly an early end to the QE program.
The Statement comes out at 11:45 am GMT, followed at 12:30 pm GMT by the usual press conference held by ECB President Lagarde. The U.S. Retail Sales and Core version will come out at 12:30 pm GMT as well. The forecast is a rise of 0.6%, and 1.0%, respectively.
German and UK banks will be closed Friday in observance of Good Friday, which will most likely affect the market’s volatility.
Technical Outlook – EUR/USD
The pair is in an obvious downtrend and is currently trading at 1.0900. The last 7 trading days have all been bearish and price is now touching the lower side of the long-term diagonal channel, which increases the chances of a retracement.
The extent of this potential bounce should be limited unless the ECB takes drastic measures to deal with inflation. After the bounce, the pair’s next destination will likely be the previous low at 1.0805, followed by the support at 1.0775.
The RSI doesn’t show an extreme condition (oversold or overbought) and MACD is also relatively tame, which suggests that we may see a period of calmness.
