EUR/USD – Central Bankers’ Meeting, U.S. Inflation
Last week was a rollercoaster ride for the US Dollar: on Wednesday it was boosted by the Fed’s announcement that it may begin to taper asset purchases as soon as November and that rate hikes may soon follow, but on Thursday it had the biggest drop in about a month after Evergrande’s situation improved.
Evergrande, which is the second-largest property developer in China, missed a Thursday deadline for paying $83.5 million, but the Beijing government added more monetary resources and Evergrande declared that it will manage to make interest payments, thus subsiding fears of a collapse of the company.
The Euro was largely unfazed by the German elections which took place over the weekend, and EUR/USD started to move towards support as the dollar strengthened. This week is sprinkled with U.S. inflation data and Fed speeches, which will shed more light on the Fed’s taper signal.
Key Events for the Week Ahead
Tuesday at 2:00 pm GMT, Fed Chair Powell will testify before the US Senate Committee on Banking, Housing, and Urban Affairs about Coronavirus and CARES Act. It’s not clear whether this will have a substantial impact on the US Dollar but speeches of heads of central banks should be always treated with caution.
Wednesday at 3:45 pm GMT, ECB President Lagarde, Fed Chair Powell, and BoE Governor Bailey will participate in the virtual “Policy panel” at the ECB Forum on Central Banking. This will bring together three of the major central bank leaders, which will likely send ripples across the FX market, thus the event should be taken into consideration.
The last two days of the week will mark the release of a few Purchasing Managers’ Indexes, most notable being the Chicago PMI (Thursday at 1:45 pm GMT), as well as the German Manufacturing PMI and US Manufacturing PMI, both released Friday.
Also Friday, we take a look at U.S. inflation with the release of the Core PCE Price Index, scheduled for release at 12:30 pm GMT. The index tracks the change in the price of goods and services purchased by consumers, excluding energy and food, and is rumoured to be the Fed’s favourite inflation gauge. The expected change is 0.2%, while the previous was 0.3%.
Technical Outlook – EUR/USD
After the climb seen last Thursday, the US Dollar erased its losses and is now trading very close to the support at 1.1700. The pair tried to break this level as recently as last week, which shows that bearish pressure is building up and that we may see a break soon.
Even if the bears manage to move the pair below 1.1700, they will encounter support at last month’s low located at 1.1665. A break of that low will open the door for a stronger move into the 1.1600 zone, but remember that we have some important speeches this week, and any hint about a monetary policy change can trigger strong moves.