Get Ready for the Busiest Week of the Year Thus Far

Central Banks, Interest Rates, Jobs, and More.

As the first trading month of 2023 comes to an end, the markets are getting ready for a week that’s overflowing with important events and releases. From inflation data to press conferences, interest rates and jobs, this week has it all, so it’s fairly safe to assume that price action will be a rollercoaster.

Both the Fed and the European Central Bank will announce their new interest rates this week. And because EUR/USD is mostly driven by the divergence between the two central bank policies, this could mean that a new trend will emerge, or the old one will be strengthened.

Key Data for the Week Ahead

The first important release is scheduled for Tuesday at 3:00 pm GMT: the U.S. Consumer Confidence survey. A slight increase is anticipated and because consumer confidence is correlated with consumer spending, we may see an uptick in retail sales later on.

Wednesday at 10:00 am GMT the Eurozone CPI comes out, showing the changes in the price that consumers pay for the goods and services they purchase. Currently, the Core CPI is 5.2% and it is expected to drop to 5.1%, while the CPI is 9.2% and expected to drop to 9.0%.

Wednesday at 1:15 pm GMT we take a first look at the employment situation in the U.S. with the release of the ADP Non-Farm Employment Change, followed at 3:00 pm GMT by the ISM Manufacturing PMI.

Also Wednesday, at 7:00 pm GMT, the FOMC Statement comes out, containing the new interest rate and details about the reasons that influenced the decision. The rate is expected to rise to 4.75% from the current 4.50%, meaning that only 25 bps will be added. This is clearly a shift in the Fed’s monetary policy and it will be interesting to see what their perspective on future rate hikes will be. Fed Chair Powell will hold the usual press conference at 7:30 pm GMT and will probably shed more light on the matter.

Thursday at 1:15 pm GMT it’s the ECB’s turn to announce the rate. The central bank is expected to add 50 bps to the rate, lifting it from 2.50% to 3.00%. ECB President Lagarde will hold a press conference at 1:45 pm GMT, during which volatility will probably increase.

Friday at 1:30 pm GMT the U.S. Non-Farm Payrolls report comes out, showing the situation of the jobs market in the United States. This release is always a market-moving event and should be approached with caution.

Technical Outlook – EUR/USD

The pair is still trading above the support at 1.0775 but the bullish pressure is fading and it looks like a retracement is underway. For quite a while now, the RSI has failed to make a higher high although the pair printed several higher highs. This divergence combined with the extended climb is a sign that a deeper pullback will soon materialize.

The first target for this possible pullback is the support at 1.0775 and the bullish trend line seen on the chart. A break of this zone will bring in additional sellers, making the pair prone to descend into the 50-day MA and the lower Bollinger band.

Given the huge amount of market-moving events scheduled for this week, the technical aspect will play a smaller role than the fundamental.