Rate Week Is Here: Final Calls on the Horizon?
Powell and Lagarde: Rate Projections Awaited.
Every investor has been eagerly marking their calendars for this week: It’s when two of the world’s most powerful central banks are set to announce their newest policy directions. It’s anticipated that both the Federal Reserve and the European Central Bank will commit to a 25-bps hike (Wednesday and Thursday, respectively).
However, all eyes will be on Federal Reserve’s Jerome Powell and ECB’s Christine Lagarde, keen to get a glimpse of their perspectives on the interest rate trajectory. As always, it’s more about what’s next, since this week’s rate increases are almost a sure thing.
The market consensus agrees that this could be the Federal Reserve’s final hike and the second-to-last from the European Central Bank. The worldwide monetary tightening may soon reach its conclusion, thus the question arises: when will central banks start to cut rates? That’s why the speeches of the two central bank chiefs will be utterly important, maybe more than usual.
Key Data for the Week Ahead
Monday, 1:45 pm GMT: Release of the U.S. Manufacturing and Services PMIs. These reports provide insight into the private sector’s economic health by surveying purchasing managers at businesses nationwide.
Tuesday, 2:00 pm GMT: Release of the U.S. CB Consumer Confidence survey, a gauge for consumer sentiment and future spending.
Wednesday, 6:00 pm GMT: The FOMC Statement and interest rate decision. The rate is expected to increase from the current 5.25% to 5.50%.
Wednesday, 6:30 pm GMT: Federal Reserve Chair Powell’s press conference, which could shed light on the central bank’s views and future strategies.
Thursday, 12:15 pm GMT: The ECB will release the monetary policy statement and will announce the interest rate. The rate is expected to increase from the current 4.00% to 4.25%.
Thursday, 12:45 pm GMT: ECB President Christine Lagarde will host the usual press conference, during which she will expand on the bank’s monetary policy decisions and outlook.
Friday, 12:00 pm GMT: The German Prelim CPI release; an early estimate of inflation in Europe’s largest economy.
Friday, 12:30 pm GMT: Release of the U.S. Core PCE Price Index, one of the Federal Reserve’s preferred gauges of inflation.
Technical Outlook – EUR/USD
The pair is currently trading at 1.1120, after peaking at 1.1275 on July 18. Although the resistance at 1.1175 was breached, the price has returned below it and in the process, it cleared the overbought condition of the RSI.
The Bollinger Bands are wide apart but are traveling in the same direction. Usually, the upper band acts as resistance and the lower as support, which means that now we may see a deeper pullback. How far the current pullback extends will be data-dependent.
Considering the vast amount of data coming out this week, be cautious of sudden changes of direction and possibly irregular price action.
