US Growth Defies Rates; Powell Eyes Tighter Steps
EUR/USD: Between ECB’s Rate Call and US’s Core PCE Release.
The U.S. economy is still buoyant, despite a high interest rate, as shown by last week’s Retail Sales numbers that exceeded expectations by a hefty margin. During his anticipated speech on Thursday, Federal Reserve Chair Powell highlighted that the robust U.S. economy and the sustained tightness in the labor market might necessitate stricter borrowing measures to manage inflation.
The Fed Chair questioned whether the rate has been high enough for long enough. He added that the economy is resilient and growing strongly. At the time of writing, CME’s FedWatch tool indicates that the vast majority of traders anticipate no rate changes in the upcoming Fed policy meeting. The probability of a pause in rate hikes is 98.5%
The ongoing conflict in the Middle East has driven investors towards safe-haven assets like the Swiss franc (CHF) and gold. Despite also being a safe-haven asset, the greenback hasn’t seen a significant boost last week, making only slight advancements. Against the Yen, the US Dollar touched the 150 mark, which is considered by many to be the threshold that will determine Japan’s Ministry of Finance to intervene.
Key Data for the Week Ahead
While Monday lacks any major economic indicator releases, on Tuesday the action picks up with a cluster of PMIs across the board. The string of releases starts early in the morning, at 7:15 am GMT with the French Manufacturing and Services PMIs, followed at 7:30 am GMT by the same indicators for the German economy and at 8:30 am GMT by their U.K. counterparts. The U.S. PMIs will come out at 1:45 pm GMT.
The German IFO Business Climate survey is scheduled for Wednesday at 8:00 am GMT and later in the evening, at 8:35 pm GMT, Fed Chair Powell will speak at the Moynihan Lecture in Social Science and Public Policy. It is unclear how the speech will affect the dollar but caution is recommended nonetheless.
Thursday will be the most anticipated day of the week for the Euro, as the ECB will announce the interest rate. The scheduled time is 12:15 pm GMT and no change is expected from the current 4.50%. At 12:45 pm GMT, ECB President Christine Lagarde will hold the press conference, which usually creates the biggest volatility.
The economic week finishes Friday with key inflation data for the U.S. economy: the Core PCE Price Index, which is scheduled at 12:30 pm GMT. The expected change is 0.3%, while the previous was 0.1%. We will see if this affects the Fed’s plans in their fight against inflation.
Technical Outlook – EUR/USD
Although volatility was relatively low last week, the takeaway is the bounce at 1.0500. The dollar bulls failed to breach this key support and now the pair is showing a higher low.
Considering that the pair failed to break 1.0500 twice and that now it has moved above the long-term bearish trend line, we might see a stronger rally. The RSI was recently oversold, which supports such a bullish scenario, at least in the short term.
However, the price is still below the 50-day Moving Average, so we are dealing with a bearish market. Let’s not forget that a plethora of economic data will come out this week and the technical aspect may take a step back.
