Economists forecast the GfK Consumer Confidence Index to increase from -29.7 to -27.0 for March. Investors must consider the sub-components, including the outlook for income and spending. Private consumption contributes over 50% to the German economy.
Inflation numbers for France and Germany warrant investor interest on Wednesday. Sticky inflation could reduce bets on an April ECB rate cut. Economists forecast the French annual inflation rate to soften from 3.1% to 2.9% in February. Significantly, economists expect the German inflation rate to slip from 2.9% to 2.8%.
Other stats include German retail sales and unemployment figures and French GDP numbers. However, these will likely play second fiddle to the inflation reports.
On Friday, Manufacturing PMI and Eurozone inflation numbers will garner investor interest. Unless there is a marked revision to the preliminary Eurozone Manufacturing PMI, Eurozone inflation numbers will have more impact.
Economists forecast the annual inflation rate for the Eurozone to fall from 2.8% to 2.7%. Wage growth and inflation remain the focal points for the ECB. A higher-for-longer ECB rate path could reduce disposable income, curb consumer spending, and dampen demand-driven inflation.
ECB Speakers for the Week
Beyond the numbers, ECB chatter also needs consideration. ECB President Christine Lagarde (Mon) and Executive Board member Elizabeth McCaul (Wed) are on the calendar to speak.
US Economic Calendar
On Tuesday, consumer confidence and durable goods orders will draw investor interest. Unless there is a marked decline in core durable goods orders, consumer confidence will be the focal point. Economists forecast the CB Consumer Confidence Index to decline from 114.8 to 114.0. A fall below 110 could signal a pullback in consumer spending and raise bets on an H1 2024 Fed rate cut.
Other stats include housing sector data (Mon/Tues). However, leading indicators for inflation will likely impact the EUR/USD more.
Q4 GDP and trade data will be in focus on Wednesday. Revisions to first-estimate GDP numbers could move the dial. A marked downward revision could impact sentiment toward the US economy and the Fed rate path. According to first estimate numbers, the US economy expanded by 3.3% in Q4.
On Thursday, the focus will shift to the US Core PCE Price Index and personal income/spending figures. Upward personal income/spending trends and sticky inflation could delay bets on a Fed rate cut until H2 2024.
A pickup in personal income and spending could fuel demand-driven inflation. A more hawkish than projected Fed rate path could impact disposable income and consumer spending.
Economists forecast the Core PCE Price Index to increase by 0.4% in January after rising by 0.2% in December. Personal income forecasts are also upbeat, while economists expect personal spending to rise by 0.3%. In December, personal spending increased by 0.7%.
On Friday, the US manufacturing sector and consumer sentiment numbers need consideration.
According to the preliminary report, the Michigan Consumer Sentiment increased from 79.0 to 78.6 in February. Revisions to preliminary numbers could move the dial. However, investors must consider the inflation-linked sub-components.
Economists forecast the ISM Manufacturing PMI to remain at 49.1 in February. The manufacturing sector accounts for less than 30% of the US economy. However, dire numbers could impact expectations of a no-landing.
Fed Speakers for the Week
Beyond the numbers, investors must monitor FOMC member speeches. Fed Vice Chair John Williams is on the calendar to speak on Thursday. FOMC members Raphael Bostic (Thurs/Fri), Loretta Mester (Thurs), and Mary Daly (Fri) will also deliver speeches.
Reactions to the recent inflation numbers and guidance on the timeline for Fed rate cuts need consideration.
Short-Term Forecast:
The near-term EUR/USD will hinge on inflation and central bank commentary. Softer-than-expected inflation numbers from the euro area could raise bets on an April ECB rate cut. In contrast, US economic indicators signal a robust US economy supported by tight labor market conditions. Monetary policy divergence remains tilted toward the US dollar.
EUR/USD Price Action
Daily Chart
The EUR/USD remained below the 50-day EMA while hovering above the 200-day, sending bearish near-term but bullish longer-term price signals.
A EUR/USD break above the 50-day EMA would support a move to the $1.09294 resistance level. The EUR/USD must break down resistance at the Thursday high of $1.08883 to retake the $1.09 handle.
Inflation and central bank forward guidance need consideration.
However, a drop below the 200-day EMA and $1.07838 support level would give the bears a run at the $1.06342 support level.
The 14-period Daily RSI at 50.36 suggests a EUR/USD move to the $1.09294 resistance level before entering overbought territory.
