February 24, 2024
London, UK

EURUSD Analysis: Impact of Key Economic Data and Central Bank Speeches

EURUSD

EURUSD has been experiencing volatility in recent weeks, influenced by various factors such as economic data releases, central bank speeches, and market sentiment. In this analysis, we will delve into the key elements that have been shaping the EURUSD exchange rate and explore the potential impact of upcoming events.

Soft CPI Prints

One of the factors impacting the performance of the Euro (EUR) against the US Dollar (USD) is the release of soft Consumer Price Index (CPI) prints. According to ANZ, weaker-than-expected CPI figures may hamper the Euro’s performance across G10 currency pairs, potentially restricting any rallies against the USD.

Employment Data

Softer employment data, expected to be released next Friday, could also hinder the EURUSD forex pair. The market will closely monitor these figures as they could potentially influence the exchange rate.

Jerome Powell’s Hawkish Tone

Federal Reserve Chair Jerome Powell recently delivered a speech at the Jackson Hole Symposium, where he acknowledged the “restrictive” nature of the current monetary policy. Powell emphasized the Fed’s commitment to hitting the 2% inflation target and keeping it there and recognized the recent housing data points to the recovery of prices and rents. He highlighted the importance of supply and demand balancing through restrictive monetary policy. However, Powell also expressed caution, acknowledging that the recent strength in economic activity could put further progress on inflation at risk and potentially warrant further tightening of monetary policy.

Christine Lagarde’s Dilemma

European Central Bank (ECB) President Christine Lagarde faces a more challenging task, given the worsening economic outlook in the eurozone. Lagarde is likely to maintain a data-dependent approach and a hawkish tone despite the sluggish growth projections. The ECB’s window for one last rate hike to curb service inflation is closing fast, and the decision to pause in September may eliminate any future opportunities for rate hikes.

Market Expectations and Potential Reversals

USD Strength and Priced-In Hawkishness

The US Dollar has recently strengthened ahead of key central bank speeches, and market expectations for a hawkish tone by Powell are largely priced in. The recent rise in US rates has complemented the tightening of financial conditions induced by monetary policy. Therefore, it is unlikely that Powell’s speech will trigger a significant USD rally.

EURUSD Rebound Potential

On the other hand, the Euro has faced downward pressure due to soft economic data and the deteriorating economic outlook in the eurozone. However, there is room for a potential rebound in the EURUSD pair after Lagarde’s speech. The EUR-USD two-year swap rate differential has widened in favour of the USD, but a hawkish stance from Lagarde could prompt a correction and support a relief rally for the Euro.

Outlook and Future Rate Expectations

Fed’s Approach to Monetary Policy

The Federal Reserve is expected to leave the Fed funds target range unchanged at the September meeting. Powell’s cautious approach and the Fed’s intention to hold policy at a restrictive level until inflation is moving sustainably down toward their objective indicate a potential pause in rate hikes. However, the Fed will likely continue signalling the potential for one further rate rise before year-end in their forecast update.

ECB’s Rate Hike Possibility

The ECB’s decision to pause in September may eliminate further opportunities for rate hikes given the deteriorating growth outlook. Lagarde’s speech and potential surprises in inflation could increase the chances of a hike in September. However, the overall economic conditions and the need for a data-dependent approach may lead to a more relaxed monetary policy in the future.

Key events this week that will affect EURUSD

The most important figure in the Eurozone will be core inflation, which remained high at 5.5% in July and is currently being pushed higher by government subsidies. Inflation numbers will play a key role in ECB decision in September, the expectations are for a reading of 5,3%. Investors will also focus on S&P Global Manufacturing final PMI which will be released on Friday. On Thursday, July retail sales data for July in Germany and France might also move the EURUSD.

In the USA the jobs report and the income and spending data will add to the pair’s volatility. NFP expectations are for 170,000 increase

Impact on EURUSD and Potential Trading Strategies

Short-Term Volatility and Trading Opportunities

The combination of economic data releases, central bank speeches, and market sentiment will likely continue causing short-term volatility in the EURUSD pair. Investors should closely monitor key economic data, central bank statements, and market expectations to identify potential trading opportunities.

Long-Term Trading Outlook

While short-term fluctuations can be influenced by various factors, it is essential to consider the long-term trends and factors that impact the EURUSD exchange rate. Factors such as economic growth, inflation, interest rate differentials, and geopolitical events should be considered when developing long-term trading strategies.

Technical Analysis for EURUSD

EURUSD is trading 0.09% lower at 1.0808, hovering around the 200-day moving average. The pair has lost 0.79% in the last week and 1.52% during the last month. A convincing break below the 200-day might trigger sell orders towards 1.0765 the low from Friday. In case of a move below that level might push the price down to 1.0635 the low from May 31.

On the other hand, if the Euro manages to rebound from the current level then the first resistance will be met at 1.0925 the 100-day moving average. Next hurdle for the common currency awaits at 1.0971 the 50-day moving average.

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