Rate Cuts Delayed? Inflation Data Takes Center Stage

EUR/USD: Massive Rejection at 50 MA. Where to Next?

The U.S. Dollar index was poised for its first weekly decline of 2024 on Friday, as investors paused their purchasing of the currency after a nearly two-month surge driven by expectations that the Federal Reserve would start reducing rates later than initially anticipated.

In an interview released on Friday, John Williams, President of the New York Fed, indicated that the Federal Reserve is on course to lower interest rates “later this year,” even in the face of January’s unexpectedly high inflation and labor market data.

According to the CME FedWatch tool, market expectations now reflect only about a 20% likelihood of the Fed beginning to lower rates in May, a sharp decrease from the nearly 90% probability seen a month earlier.

Economic Calendar Highlights

Last week was rather dull but that is definitely not the case with this one. The first event of the week is scheduled for Monday at 4:00 pm: ECB President Lagarde will speak about the ECB Annual Report 2022, in Strasbourg. Although this is not a high-impact event, it’s worth keeping an eye on.

The U.S. Durable Goods Orders will be released Tuesday at 1:30 pm GMT, followed at 3:00 pm GMT by the Consumer Confidence survey.

Wednesday traders will focus on the release of the U.S. Prelim GDP, scheduled at 1:30 pm GMT. However, the most important day of the week will be Thursday when we take a look at German inflation with the release of the Prelim CPI scheduled at 12:00 pm GMT. It will be followed at 1:30 pm GMT by the always important U.S. Core PCE Price Index, which is largely considered the Fed’s preferred gauge of inflation, so it can have a massive impact on the US Dollar.

The European CPI Flash Estimate will come out Friday at 10:00 am GMT and the last indicators of the week will be released at 3:00 pm GMT: the ISM Manufacturing PMI and the Revised UoM Consumer Sentiment survey.

Technical Outlook – EUR/USD

After what looked like a bearish break of 1.0775, the Euro bulls staged a comeback and managed to take the pair right into the 50-day Moving Average. However, this resulted in a very long pin par that is showing that there’s still some steam left in the US Dollar.

While the mentioned pin bar shows rejection, oftentimes the price can move towards the middle of this type of candle, or even higher. If this happens, we will probably see another touch of the 50-day Moving Average. If the MA rejects the price once again, we should expect a consequent move into the support at 1.0775.

A lot will depend on the inflation data that will be released this week for both currencies in the pair, so make sure you keep a close eye on that.