Persistent Inflation: Will It Deter a March Rate Cut?
EUR/USD Technical Overview: A Choppy Start to 2024.
Although last week was relatively lackluster in terms of economic releases, two indicators made the headlines and gave mixed signals regarding inflation in the U.S.
The yearly Consumer Price Index (CPI) jumped from the previous 3.1% to 3.4%, while the monthly figure increased by 0.3% (previously 0.1%). On the other hand, the Producer Price Index (PPI) came below expectations, suggesting that inflation will cool down in the near future.
At the time of writing, the CME FedWatch tool shows that there’s a 70% chance the Fed will cut the interest rate at their March meeting. As for the upcoming January meeting, the probability for the rate to remain unchanged is more than 95%
Economic Calendar Highlights
The World Economic Forum (WEF) will convene in Davos this week for the annual meeting. Several heads of central banks will be interviewed and will speak publicly, which can affect volatility. The WEF Annual Meetings start on Monday and will continue for the entire week.
Monday, U.S. banks will be closed in observance of Martin Luther King Jr. Day, and no economic indicators will be released.
The Empire State Manufacturing Index will come out Tuesday at 1:30 pm GMT, showing the condition of the manufacturing sector in the New York state.
Perhaps the most important indicator of the week is scheduled for Wednesday at 1:30 pm GMT: the U.S. Retail Sales alongside the Core version which excludes automobiles from the calculation.
ECB President Lagarde will speak at the WEF Meetings in Davos on two separate occasions: Wednesday at 3:15 pm GMT and Friday at 10:00 am GMT.
The last notable release of the week will affect the greenback: the Prelim UoM Consumer Sentiment. This is a leading indicator of consumer spending and is scheduled to come out Friday at 3:00 pm GMT.
Technical Outlook – EUR/USD
Price action since the beginning of 2024 has been very choppy, which is not something out of the ordinary because the holidays are still affecting liquidity. Currently, the pair is trading just below the resistance at 1.1000 and the candles are showing long wicks, which is a sign of indecision.
Since early October 2023, the Euro bulls have been largely controlling the pair, so in the longer term, we will probably see a break of 1.1000. However, the first move may very well be a touch of the 50-day Moving Average and the bullish trend line seen on the chart below.
The Relative Strength Index is not showing an extreme reading, so it doesn’t help a lot with direction. Probably a wise choice would be to wait for a break of 1.1000 resistance or the support zone represented by the 50 MA and bullish trend line.
