EUR/USD Could Be Supported by EA CPI on Thursday
2023, Week Number 35, Wednesday
DERBYSHIRE GB / 2023, Week Number 35, Wednesday - Charts updated along with economic outlooks. Next update after the EA CPI on Thursday, August 31st.
Last Week's Events
PMI’s from the EA, UK and the US all missed expectations indicating slowing economies. Fed chair Powell reiterated his hawkish stance on monetary policy at the Jackson Hole Symposium.
This Week's Events
Tuesday, August 29th
US CB Consumer Confidence declined a lot more than expected
US JOLTS Job Openings declined a lot more than expected
Wednesday, August 30th
DE Prelim CPI expected to remain steady
US ADP Non-Farm Employment Change large decline expected
US Prelim GDP expected to remain steady
Thursday, August 31st
EA CPI Flash Estimate expected to slightly decline
EA Unemployment Rate expected to remain steady
US PCE Price Index expected to remain steady
US Unemployment Claims expected to remain steady
Friday, September 1st
US Average Hourly Earnings slight decline expected
US Non-Farm Employment Change large decline expected
US Unemployment Rate expected to remain steady
US ISM Manufacturing PMI expected to remain steady
Next Week's Events
Wednesday, September 6th
US ISM Services PMI
Thursday, September 7th
US Unemployment Claims
CME Group 30-Day Fed Fund futures
September favours a hold and odds have risen to 88% from 85%. A 0.25 hike chance has fallen to 12% from 15%.
November favours a hold but odds have fallen to 52% from 61%. A 0.25 hike chance has risen to 44% from 37%.
US DOLLAR
The economy of the United States (US) is facing a mixed outlook. The Federal Reserve is expected to keep interest rates steady although at a high level, which could dampen economic growth. However, GDP is projected to grow at a modest pace, and inflation is expected to remain stable. The war in Ukraine and the China-US trade war are factors that could support the dollar higher due to safe-haven flows.
This mixed outlook has been recently reflected in the US Dollar Index which has been moving within a 500 pip range for the past nine months although pessimistic views are gaining as the index has climbed 4.4% in the past two months to form an uptrend. Signs that the pessimism is worsening can be seen by the higher yields of the six month Treasury bonds which have broken above 5.5% although the S&P 500 stock index shows some rising optimism as it gains above the 50-day moving average.
Upcoming economic events could worsen the sentiment of rising pessimism and support the DXY higher as the labour report, out on Friday is forecasted to show a deterioration. However, a deterioration more significant than forecasted could sway the Fed away from its hawkish stance towards a view of cutting rates. This would be a boost to the economy and improve sentiment to be more optimistic, leading to a fall in the DXY.
Euro
The economy of the Euro Area (EA) is facing a cautiously pessimistic outlook. The European Central Bank (ECB) is expected to raise interest rates again, which could dampen economic growth. However, GDP is projected to improve in the third quarter, and inflation is expected to fall. The war in Ukraine is also a major concern, as it could disrupt trade and investment.
This cautiously pessimistic outlook has been recently reflected in the EUR/USD which has fallen 3.9% in the past two months to form a downtrend. Signs that the cautious pessimism is worsening can be seen by the higher yields of the six month German bunds which have broken above 3.7% as well as the DAX stock index holding below the 100-day moving average.
Upcoming economic events could diminish some of the pessimism and support the EUR/USD higher as the CPI report, out on Thursday is forecasted to show a small improvement. However, a CPI reading higher than forecast or even worse, higher than previous could strengthen the ECB’s hawkish policy and pressure the EUR/USD down.
Pound Sterling
The economy of the United Kingdom (UK) is facing a cautiously pessimistic outlook. The Bank of England (BoE) is expected to raise interest rates again, which could dampen economic growth. GDP is projected to slightly deteriorate in the third quarter, and inflation is expected to remain sticky. The cost of living crisis and the war in Ukraine are also major concerns and may also weigh on economic activity.
This cautiously pessimistic outlook has been recently reflected in the GBP/USD which has fallen 4.25% in the past two months as it retraces an uptrend. Signs that the cautious pessimism is softening can be seen by the yield of the six month Gilt bonds which although are high above 5.7% are stable as well as the FTSE 100 stock index which has climbed above the 50-day moving average.
There are no upcoming economic events of significance that could affect UK sentiment. However, the US labour report, out on Friday is forecasted to show a deterioration which if more significant than forecasted could sway the Fed away from its hawkish stance towards a view of cutting rates. This would be a boost to the US economy and improve sentiment to be more optimistic, leading to a rise in the GBP/USD.
Gavin Pearson
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Specialises in forex G7 currencies
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