U.S. Inflation Still a Major Concern. What’s Next for the Fed?
EUR/USD’s Path amid FOMC Minutes, Retail Sales, and Confidence Indicators.
Last week’s U.S. Consumer Price Index (CPI) came in at 0.2%, the same as the previous reading and in line with analysts’ expectations. The yearly reading dropped to 3.2% lower than the forecast of 3.3%. However, July’s PPI reading showed prices rising slightly faster than expected, fueling expectations the Federal Reserve will keep interest rates higher for longer.
The U.S. Producer Price Index (PPI) for final demand rose 0.3% in July, according to the Labor Department (compared with economists’ expectations for 0.2%). Also on Friday, a survey showed U.S. consumer sentiment rose, which means that sales at retail levels may increase in the near future.
Friday’s data makes the case for the Fed to keep rates higher for longer and it puts additional rate hikes back on the table for this year.
Upcoming Key Economic Data Releases This Week:
Tuesday at 9:00 am GMT: Watch out for the German ZEW Economic Sentiment announcement, an essential metric for gauging the economic temperature in Germany.
Also Tuesday, at 12:30 pm GMT: A doubleheader from the US with the Core Retail Sales m/m set to be released. It’s expected to come in at 0.4%, marking a slight uptick from its previous value of 0.2%. Notably, the Retail Sales m/m mirrors the Core version, showing the same expected and previous figures. Alongside this, the Empire State Manufacturing Index will be unveiled, showing the opinions of New York manufacturers regarding overall business conditions.
Wednesday at 6:00 pm GMT: All eyes will be on the FOMC Meeting Minutes, a detailed record of the FOMC’s latest rate meeting. The main reason why this release is important is the clues it can give away regarding the trajectory of future rate hikes or cuts.
Thursday at 12:30 pm GMT: The Philly Fed Manufacturing Index is set to be released. While traditionally not as impactful (at least it doesn’t have a strong and immediate chart reaction), it’s always good to stay informed because surprises can happen
Friday at 9:00 am GMT: Rounding up the week, the Final CPI for the Eurozone will be made public. However, its significance may be somewhat muted this time around, given that the Flash release, which typically holds more sway, was released approximately two weeks prior.
Technical Outlook – EUR/USD
The pair is currently trading around 1.0930 after being rejected at the bullish trend line. The fact that the bulls didn’t manage to break this resistance zone shows that the price may be headed lower. However, there’s not a lot of momentum and it looks like the pair is forming a base on the 50-day Moving Average.
It must be noted that the pair has already formed a technical divergence: the price is making a higher low while the RSI is making a lower low. This is a bullish signal that produces results more often than not, but it’s not a guarantee that the price will shoot up.
For now, the levels to watch are 1.1000, the 50-day MA, and the lower Bollinger Band, which may trigger a bounce if the price gets there.
