U.S. Inflation Is… Inflating Again. Fed Meeting Ahead

Dollar Bulls vs Euro Bulls: The Battle for 50 MA

Last week the U.S. Consumer Price Index flew past expectations, swelling to 0.4% from the expected 0.3% (Core CPI) and to 3.2% from the previous 3.1% (yearly headline CPI). The greenback flexed its muscles against all of its 6 counterparts included in the US Dollar Index (DXY) and staged a reversal against the Euro inches before reaching the key resistance at 1.1000.

The chances of a Fed rate cut at the upcoming March meeting were very low even before the CPI release but once the CPI numbers came out, they dropped close to “impossible” levels. At the time of writing, the CME FedWatch tool shows a mere 2.0% chance that the rate will be trimmed Wednesday at the FOMC Meeting. Maybe even more interesting is that according to the same tool, the probability of a cut in May is just 6.4%, a big drop from just a week ago when it was hovering around 20%.

Economic Calendar Highlights

The first notable release of the week will be the German ZEW Economic Sentiment survey, scheduled for Tuesday at 10:00 am GMT. For this survey, about 300 German professional investors and analysts are asked to rate the German economic outlook for the next 6 months. The impact is usually medium as the indicator is not known to create massive ripples on the charts.

The main event of the week is scheduled for Wednesday at 6:00 pm GMT: the FOMC Statement, Economic Projections, and of course, the rate announcement. Although there’s a very high chance that nothing will change, it will be very interesting to see if the Statement contains any forward guidance and also what Fed Chair Powell’s attitude will be during the press conference that follows at 6:30 pm GMT.

Thursday will be lined with a cluster of Purchasing Managers’ Indexes: the French and German Services and Manufacturing PMIs will come out early in the morning, followed by the same indicators for the UK economy and at 1:45 pm GMT by the homologs for the U.S. economy. The Bank of England will announce the interest rate the same day at 12:00 pm GMT, with no change expected.

The Euro Summit will take place all day Friday and at 1:00 pm GMT, Fed Chair Powell will deliver a public speech at the Fed Listens event, in Washington DC.

Technical Outlook – EUR/USD

The Euro bulls failed to challenge or even reach the resistance at 1.1000 and it looks like the charts are almost completely under the control of U.S. inflation. The dollar is likely to keep on the offensive until the Fed signals some sort of timeframe for trimming the rate.

For the time being, the pair seems to be headed for the 50-day Moving Average and once it gets there, we will be dealing with a bounce-or-break scenario. Depending on what transpires on the fundamental scene, the pair can drop to the 1.0775 support or it can make another attempt to break the previous high.