Inflation, Jobs, and Rates – The Three Determining Factors for EUR/USD’s Next Move.
Eurozone inflation surprised many market participants last week as the CPI accelerated to 8.1%, making the case for a rate hike in July. The European Central Bank is set to convene on Thursday and ECB President Christine Lagarde is expected to announce an end to the bond-buying programme.
Speculation is high around a potential rate hike in July but the debate is whether the ECB will choose a conservative approach and add 25 bps or the more aggressive version of 50 bps. Christine Lagarde’s press conference will probably offer clues regarding this, thus it will be closely watched.
On the other side of the Pond, the US Dollar benefited from an upbeat NFP report, and this week, traders will focus on the U.S. Consumer Price Index, which will play a big part in the Fed’s decision regarding the next hike.
Key Data for the Week Ahead
German, French, and Swiss banks will be closed today in observance of Whit Monday, so we may see a day without volatility on Euro-related pairs. No major data will come out until Thursday when the ECB will announce the interest rate decision and will release the Monetary Policy Statement at 11:45 am GMT.
The same day at 12:30 pm GMT, ECB President Lagarde will hold the usual press conference, discussing the rate decision, the bond-buying programme and possibly offering clues about a July rate hike. The conference will most likely create waves of volatility, thus caution is strongly advised.
Friday at 12:30 pm GMT, traders will focus on the U.S. Consumer Price Index and the Core version of the same indicator. These are the main gauges of inflation and can directly influence the pace of the Fed’s rate hikes, thus their importance is paramount.
Technical Outlook – EUR/USD
Lately, the pair has been extremely obedient, bouncing perfectly between support and resistance. It is currently trading at 1.0745, right on the 50-day Moving Average and below a bearish trend line.
Thus far, the resistance at 1.0775 has acted as a strong barrier and the prevailing trend is bearish. This suggests that the pair is likely to resume its downward movement unless the mentioned resistance is quickly and vigorously broken. We are dealing with a confluence zone (50 MA, trend line, and horizontal resistance), thus a break would show serious bull strength.
To the south, a break of 1.0635 support would suggest that the bears are gaining back control but the technical side will be overshadowed by the ECB rate talks and the U.S. inflation data that will be released later in the week.