EURUSD: the FOMC week

7 hari laluThe inflation rate in the US in August reached 0,2% for the month and 2,5% on a yearly basis. This was in line with market expectations. Core inflation remained modestly elevated, reaching 0,3% on a monthly basis and 3,2% for the year. The Producers Price Index for August was standing at 0,2% for the month, modestly higher from forecasted 0,1%. Core PPI reached 0,3% for the month. Michigan Consumer Sentiment preliminary for September reached the level of 69, higher from 67 expected by the market. The five year inflation expectations were increased to the level of 3,1%, from 3,0% expected during previous months.

The ECB cut interest rates by 25 bps during the previous week. Such a move was expected by markets, considering the weakening Euro Zone economy. The ECB inflation projections remained unchanged from June, however, growth forecasts were changed to the downside. At this moment, the ECB expects a yearly growth rate of 0,8% for 2024, and 1,3% in 2025. As for other data published for the Euro Zone, the industrial production contracted further by -0,3% in July, bringing the drop to -2,2% for the year. The inflation in Germany in August reached -0,1% for the month, bringing the yearly inflation to the level of 1,9%. Both figures were in line with consensus.

The USD was gaining in strength during the week, amid ECB rate cut, however, at Thursday's trading session, currency returned to the levels from the start of the week. The currency pair started the week at levels around 1,108, reached its lowest weekly level at 1,1010 and finished the week at 1,1076. The RSI is still not ready to start the path toward the oversold market side, as the indicator was mostly moving at levels modestly above the 50 line during the week. The moving average of 50 days continues to strongly diverge from its MA200 counterpart, further confirming the cross occurred as of the end of August.

The week ahead is the FOMC week, where the first rate cut in this economic cycle is highly expected by the market. For sure, it is going to be a highly volatile week. Charts are currently suggesting a potential for further strengthening of the USD, where support line at 1,10 might be tested for its potential to the downside. A modest reversal is also possible but not higher from 1,1050, as current charts are suggesting.

Important news to watch during the week ahead are:
EUR: ZEW Economic Sentiment Index in September for the Euro Zone, Inflation Rate final for August in the EuroZone, Producers price Index in August in Germany, HCOB Manufacturing PMI Flash in September for Germany and the Euro Zone,
USD: Retail Sales, Industrial Production in August, Building Permits preliminary in August, FOMC Meeting