The upcoming week promises to be interesting, with major events unfolding in the second half of the trading week: we will learn the results of the March European Central Bank meeting, hear from the Federal Reserve chief (who will testify in Congress), and assess the dynamics of the US labor market.
This series of fundamental events will guarantee volatility in the EUR/USD pair. Therefore, traders have a chance to escape the flat market, either moving towards the ninth figure (with a target of 1.1000) or back to the seventh figure. We will not be bored, there is no doubt about that.
Monday
On the first working day, the Sentix investor confidence indicator will be published, which will show investors' confidence in the eurozone economy. Since March 2022, it has been in negative territory, signaling pessimism among investors. However, since November 2023, the indicator has shown an upward trend, and according to forecasts, this trend will continue in March: the index is expected to reach -10 points (for comparison, in October, it was at -21.9 points).
During the US trading session, the President of the Federal Reserve Bank of Philadelphia, Patrick Harker, is scheduled to speak. Not long ago, at the end of February, he made an interesting statement. He allowed for a rate cut as early as the May meeting. But he also mentioned that he needs more confidence on inflation progress. Since then, several important reports have been published, among which are the core PCE index for January (reflecting a slowdown in inflation) and the ISM manufacturing index (unexpectedly dropped to 47 points). If, against the backdrop of these releases, Harker talks about the prospects of a May rate cut once again, the dollar may come under slight pressure (the President of the Fed Bank of Philadelphia does not have voting rights this year).
Tuesday
On Tuesday, the final estimates of the European PMI indices for February will be published. According to forecasts, the initial estimate will coincide with the final one, so the market will likely ignore this data.
The most interesting events will occur during the US session. In particular, we have the February value of the ISM Non-Manufacturing Purchasing Managers' Index. According to forecasts, the indicator should remain in the expansion zone, i.e., above the 50-point mark, but at the same time, it is expected to show a downward trend, dropping to 52.9, after the January result of 53.4. Recall that last week's report showed that the ISM manufacturing index entered the red zone, exerting significant pressure on the dollar. This report made it possible for the bulls to take the initiative on Friday and finish the trading week at 1.0840.
Another important event is the speech of Fed Board member Michael Barr. He already expressed his opinion at the end of February, which boils down to maintaining a wait-and-see stance. Barr says need to continue to see good data before beginning to cut rates, "but January's report...is a reminder that the path back to 2% inflation may be a bumpy one." We can assume that he will probably say the same thing on Tuesday, which can lend support to the greenback.
Wednesday
Fed Chairman Jerome Powell will start his two-day testimony in the U.S. Congress. Initially, he will present the semi-annual monetary policy report to the House Financial Services Committee, and the next day (Thursday) – to the Senate Banking, Housing, and Urban Affairs Committee. Given the importance of this event for EUR/USD traders, all other fundamental factors will take a back seat.
Market participants are primarily interested in Powell's assessment of the recent reports in the context of the prospects for monetary easing. Recall that most of last week's report did not support the greenback. Instead of rising to almost 115 points, the Consumer Confidence Index fell to 106 points; the estimate of U.S. GDP growth in the fourth quarter was revised down to 3.2% (initial estimate – 3.3%); the volume of pending home sales in the U.S. decreased by 4.9% (month-on-month). And this is without mentioning the aforementioned ISM manufacturing index and the core PCE index.
At the moment, market participants are nearly certain that the Fed will maintain its current stance in March and May. As for the June meeting, it's a 50/50 chance. Powell is unlikely to shift market expectations for the spring meetings but could either strengthen or weaken the dovish sentiment regarding June prospects. The market will either adjust its expectations to July/September or increase the likelihood of the Fed taking the first step in rate cuts as early as June.
Thursday
The ECB will announce the results of its March meeting. There is no doubt that the ECB will maintain a wait-and-see stance. Such an outcome has long been priced in by the market and will not leave any impression. The market is only interested in further prospects.
Recently, the rhetoric of ECB members has softened. If at the beginning of the year, most of them talked about maintaining the status quo with an "open date," now the date of the first round of rate cuts is being discussed. June is often mentioned. Members of the ECB's Governing Council, including Peter Kazimir and Yannis Stournaras, have spoken about this date. Many ECB representatives did not say it directly but hinted at June prospects, including ECB President Christine Lagarde when she said that recent wage data is "encouraging" (wage growth in the eurozone slowed to 4.5% in the fourth quarter). According to her, if the downward trend continues this year, it will be a determining factor. Given that figures for the first quarter of 2024 will be published in May, the ECB could well lower rates at the June meeting (assuming conducive conditions).
In my opinion, the outcomes of the ECB's March meeting will not work in favor of the euro: dovish signals will exert pressure on the single currency.
Friday
On the last trading day of the week, the US will release key labor market data for February. According to preliminary forecasts, the U.S. unemployment rate will remain at 3.7%. The number of non-farm payrolls is expected to increase by 190,000, significantly lower than January (353,000) and December (333,000). The average hourly earnings in February are expected to grow by 4.4% (it was 4.5% in January).
Last month, Nonfarm Payrolls surprised market participants with a "green tint": despite modest expectations, the data showed a strong result. The dollar will receive substantial support if the February Nonfarm Payrolls data also ends up in the "green". Such a result would indicate that the US labor market is not cooling off but is in fact heating up.
Conclusions
With a high probability, we can assume that by the end of the upcoming week, the EUR/USD pair will leave the 8th figure range. Especially if key events of the week resonate: the ECB demonstrates a dovish position, while Powell advocates maintaining the status quo (additional support could come from Nonfarm Payrolls if it ends up in the green).
You may consider long positions after the pair consolidates above the resistance level of 1.0890 (the lower boundary of the Kumo cloud on the daily chart). You may consider short positions after the pair consolidates below the target of 1.0780 (the middle line of the Bollinger Bands on the same timeframe).
