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The ECB, US Inflation, and Fed Speakers in Focus

Economists forecast the German ZEW Economic Sentiment Index to increase […]

Economists forecast the German ZEW Economic Sentiment Index to increase from 15.2 to 17.5.

On Wednesday, the second estimate of GDP numbers for Q4 will warrant investor attention. Revisions to preliminary GDP numbers could influence bets on an April ECB rate cut. The Eurozone economy stalled in Q4, according to preliminary numbers.

Eurozone trade data will also need consideration on Thursday. German trade figures highlighted a marked deterioration in trade terms. Similar import and export trends for the Eurozone could raise expectations of a Eurozone recession.

Economists forecast the Eurozone trade surplus to narrow from €20.3 billion to €15.4 billion. However, investors must consider the import and export numbers. Deteriorating trade terms could influence ECB plans to cut interest rates.

On Friday, German wholesale prices and finalized inflation numbers for France also need consideration. Inflation remains a consideration for the ECB in determining the interest rate trajectory. Sticky inflation could test bets on an April ECB rate cut.

Beyond the numbers, investors must consider ECB chatter. ECB President Lagarde (Thurs) and Chief Economist Philip Lane (Mon/Thurs) are on the calendar to speak. Executive board members Claudia Buch (Mon/Tues), Piero Cipollone (Mon/Wed), Luis de Guindos (Wed), Isabel Schnabel (Fri), and Anneli Tuominen (Tues) will also deliver speeches.

US Dollar Update: US Inflation, Retail Sales, and Fed Speakers

On Monday, US consumer inflation expectations will warrant investor attention. Expectations of a sticky inflation outlook could affect investor bets on a May Fed rate cut.

However, the US CPI Report will likely have more impact. Hotter-than-expected inflation figures could force the Fed to delay plans to cut interest rates. A higher-for-longer rate path could impact borrowing costs and reduce disposable income. Downward trends in disposable income could impact consumer spending and dampen demand-driven inflationary pressures.

Economists forecast the US annual inflation rate to soften from 3.4% to 3.0% in January.

On Thursday, the US labor market and retail sales figures will likely influence Fed plans to cut interest rates. Tight labor market conditions and positive trends in consumer spending could fuel demand-driven inflation.

Economists forecast retail sales to decline by 0.1% in January after rising by 0.6% in December.

However, producer price numbers for January need consideration on Friday. A pickup in producer prices could signal an improving demand environment. Producers raise prices in a high-demand environment, passing prices onto consumers.

Economists forecast producer prices to increase by 0.1% in January, reversing a 0.1% decline in December.

Investors must also monitor FOMC member speakers. FOMC members Kashkari (Mon), Goolsbee (Wed), Barr (Wed), Bostic (Thurs), Waller (Thus), and Daly (Fri) are on the calendar to speak.

Reactions to the economic indicators and views on inflation and the Fed rate path would move the dial.

Short-Term Forecast:

The near-term EUR/USD will hinge on US data, Eurozone economic indicators, and central bank speeches. Rising expectations of a Eurozone recession and a robust US economy could influence central bank forward guidance. A more hawkish Fed may tilt monetary policy divergence toward the US dollar. However, the US CPI Report and US retail sales could be pivotal.

EUR/USD Price Action

Daily Chart

The EUR/USD remained below the 50-day and 200-day EMAs, affirming bearish price signals.

A EUR/USD break above the $1.07838 resistance level and 200-day EMA would support a move to the 50-day EMA. A breakout from the 50-day EMA would give the bulls a run at the $1.09294 resistance level.

Central bank chatter, US inflation and retail sales, and euro area economic indicators need consideration.

However, a drop below the $1.07500 handle would support a fall to the $1.06342 support level.

The 14-period Daily RSI at 40.80 indicates a EUR/USD fall to the $1.06342 support level before entering oversold territory.


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