Forex Focus: European Central Bank Rate & US PCE Index
Technical Perspective: EUR/USD at Crossroad
The greenback staged a comeback last week, boosted by rate speculation and a strong rebound in Treasury yields. Just last week, Wall Street pundits were predicting close to 160 bps of rate cuts during 2024, but this forecast has now changed to roughly 124 bps of cuts for 2024.
According to the CME FedWatch tool, the probability of a cut in March has fallen from about 77% a week ago to 44.3% at the time of writing. As far as the January 31 meeting, there’s an overwhelming probability that the rate will stay the same: 97.4%.
Economic Calendar Highlights.
The first two days of the week will be quiet but on Wednesday the action picks up. A cluster of PMI surveys will be coming out early Wednesday morning for the French, German, and UK economies, followed at 2:45 pm GMT by the U.S. data for the same indicators. All these PMIs will be focused on the Services and Manufacturing sectors.
Thursday at 1:15 pm GMT, the European Central Bank will announce the interest rate, which is not expected to change from the current 4.50%. At 1:30 pm GMT we will focus on the release of the U.S. Advance GDP and 15 minutes later, ECB President Christine Lagarde will hold the usual press conference where she will discuss the rate decision and monetary policy in general.
The economic week will end with a potential market mover: the U.S. Core PCE Price Index. This is one of the main gauges of inflation in the United States and usually has a strong impact on the US Dollar. The data will come out Friday at 1:30 pm GMT and the forecast is a small increase from the previous 0.1% to 0.2%.
Technical Outlook – EUR/USD
The pair is now hovering near the confluence zone created by the 50-day Moving Average and the bullish trend line. Although last week this support zone appeared to be broken, it looks like the bulls are trying to take the price back above the trend line.
The Relative Strength Index is not in an extreme position, so it doesn’t offer a lot of clues about direction. A move back above the previous support will incentivize more bulls to join, but a bounce from here will validate the break and will send the pair lower.
We have a strong week ahead of us, with important releases for both the EUR and USD, so the price action will certainly be influenced by these.
