EUR/USD In Balance… but That’s All About to Change
Last week the EUR/USD market has been harsh for traders, as it has been kept in a narrow range of below 100 pips since Monday. This lack of volatility can be attributed to the absence of fundamental drivers and limited data.
Despite hawkish Fed speak, the US dollar has not seen much movement and has remained relatively stable throughout the week. FOMC members will enter a period of ‘radio silence’ next week, getting ready for the FOMC meeting on May 3rd.
According to CME’s FedWatch tool, there’s an 86.06% chance of another 25 basis point hike at the next meeting. The rate is then expected to freeze, followed by rate cuts at the beginning of Q4.
Key Data for the Week Ahead
Unlike last week, the current one has a lot more volatility catalysts, thus we will probably see clearer movement.
The U.S. Consumer Confidence survey is due for release Tuesday at 2:00 pm GMT. The survey acts as a leading indicator of consumer spending and has a medium impact on the US Dollar; the impact is higher if the actual number differs significantly from the forecast.
Thursday at 12:30 pm GMT we take a look at the U.S. Advance GDP, which is the main gauge of economic activity in the U.S. It shows the change in the total value of goods and services generated by the economy and the expected figure is 2.0%, a drop from the previous 2.6%.
Friday is inflation day: at 12:00 pm GMT we take a look at the German CPI and at 12:30 pm GMT, the U.S. Core PCE Price Index will be released. German inflation is expected to drop from 7.4% to 7.3% (yearly numbers), while U.S. inflation is expected to decrease to 4.5% from 4.6%.
Technical Outlook – EUR/USD
After the false break of 1.1000, the pair returned below the level and it looked like it was going to gain bearish momentum and speed. That wasn’t the case and last Monday’s big bearish candle became the range of the week. Basically, last week’s entire movement was capped by Monday’s upper and lower limits.
Given that we have a lot more data coming out this week, the price action is likely to speed up. Since inflation has been the main price driver for quite a while now, and inflation data comes out for both currencies in the pair, we can expect the pair’s direction to be decided by that data.
From a strictly technical point of view, EUR/USD is still in need of a deeper pullback. Unless we see surprising readings for the German CPI and U.S. PCE, there’s a good chance of a drop toward the lower Bollinger Band, with 1.0850 as the first potential support.