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Consolidations are usually called “the calm before the storm.” The eventful economic calendar suggests that’s true. Jerome Powell’s speech, the ECB’s meeting, and the US jobs report can undermine the EURUSD’s position. Let’s discuss it and make a trading plan.
Weekly fundamental forecast for dollar
While the US stock indexes, Bitcoin, and gold grow fast, G10 currencies remain incredibly calm. The EURUSD has been unable to exit the range of 1.07-1.09 since mid-January. Now that market rate cut expectations come in line with the FOMC’s latest forecasts, the major currency pair feels relaxed. Can Jerome Powell’s congressional speech, the ECB’s meeting, or the US jobs report somehow agitate it?
In mid-2023, every four out of five experts surveyed by Bloomberg believed the US economy would face a recession in the first half of 2024. According to their consensus estimate, GDP will grow by as little as 0.6% at the year-end. Such forecasts allowed the derivatives market to expect six acts of the Fed’s policy easing, which made the US dollar sink against major currencies in Q4.
Evolution of consensus forecasts for US GDP
Source: Financial Times.
Time passed, but the US economic “sky” remained bright. Consensus estimates for 2024 GDP started rising, the CME derivatives expect the federal funds rate to be cut by only 85 bps this year compared to 150 bps at the end of 2023, and the greenback leads the G10 currency race.
Events outside North America don’t help the EURUSD either. The euro is a pro-cyclical currency, so it requires the global economy’s recovery, and there have been no such signals yet. At the same time, a drastic decline in producer prices in the eurozone hints that European inflation will reach the target of 2% quickly. The ECB will most likely downgrade its forecasts for consumer prices at its March meeting, suggesting an earlier start of monetary expansion and putting pressure on the main currency pair.
Eurozone’s consumer and producer prices
Source: Bloomberg.
Everything suggests that the EURUSD is likelier to fall than grow. However, euphoria often leads to deplorable results. Experts, like traders, are used to working with trends, but trends break when everyone is sure of continuation. First, the “US economic recession” narrative gave way to expectations of a soft landing. Now, they speak about growth, but market sentiment will quickly change if macro stats turn out pessimistic. That will be a foundation for buying the euro, and so will the eurozone’s improving economic health.
Weekly trading plan for EURUSD
Two things are expected of Jerome Powell: 1. Saying that the January acceleration of US inflation will not change the Fed’s outlook. 2. Saying that the central bank will not rush to lower the fed funds rate in 2024.
That’s nothing new, but investors’ nerves are stretched to the limit, and even an insignificant phrase can push them to take action. The EURUSD’s decline below 1.084 may become a basis for selling.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
