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The EUR/USD pair has been declining for the second consecutive week. If we look at the EUR/USD chart, we can see that as of March 8, the pair was trading around the 1.0980 mark but then it gradually started to fall. Despite significant corrective pullbacks and occasional flats, generally, the pair is moving downwards. Even the dovish outcomes of the March FOMC meeting did not break the dollar bulls. However, we should be cautious with the recent slump. This price movement doesn't look reliable: the US Manufacturing PMI, which stayed in the green and hit a multi-month high, boosted the dollar. At the same time, the market seemed to "forget" that the Federal Reserve maintained its dot plot, suggesting three rate cuts this year. The dollar's growth seems excessive, but we are certain that the bears won this round.
The economic calendar for the upcoming week (the last one in March) is not as packed as the previous one, but it's not entirely empty either. The most important release for the EUR/USD pair will be published on Friday (the core PCE index), but there are also other reports we can highlight.
European Central Bank President Christine Lagarde will speak on Monday. She will participate in the European Investment Bank's Climate and Environment Advisory Council. Considering the nature of the event, we can assume that the market will ignore her speech – she is unlikely to touch on topics of interest to traders in her remarks.
During the US session, data on new home sales will be released. Market players expect positive dynamics here: after a sharp decline in January (-1.0%), sales volume should increase by 3% in February.
Two Federal Reserve representatives – Raphael Bostic and Loretta Mester – will also speak on Monday. The head of the Atlanta Fed, Bostic, said in one of his recent speeches that the first Fed rate cut will likely occur in the third quarter, and the Fed will cut rates by 50 basis points this year. It's worth noting that the market currently assesses the probability of the first rate cut in June (not in the third quarter) at almost 70%, and according to the dot plot, a total of a 75-basis-point reduction in the policy rate is expected in 2024. In other words, Bostic takes a more hawkish stance relative to market expectations, and this fact could support the dollar.
Fed Board member Loretta Mester takes a neutral position and typically confines herself to general statements. For instance, in her latest speech, she said that she "would like to see more progress that inflation is approaching 2% before beginning rate cuts." It is worth noting that these words were uttered before the latest CPI and PPI reports, which showed that inflation accelerated in the US.
The main economic reports will be published in the United States. At the start of the US session, we will learn about the durable goods orders in February. Positive dynamics are expected here. Total orders are expected to increase by 1.2% (after a 6% decrease in January), and excluding transportation, they are expected to rise by 0.4% (after a 0.3% decline).
In addition, the indicator of American consumer confidence will be released. If it comes out in line with forecasts, it is unlikely to attract market participants' attention. This month, an increase to 106.9 points is expected, whereas in February, the indicator stood at 106.7. The Fed Bank of Richmond manufacturing index (which includes the District of Columbia, Maryland, North Carolina, and South Carolina plus Virginia), which has been in negative territory since November 2023, may show positive dynamics but is still expected to remain below zero (-3 points after February's reading of -5).
Perhaps the most uneventful day of the week. The economic calendar for Wednesday is practically empty for the EUR/USD pair. During the European session, the final estimate of consumer confidence in the Eurozone will be published (expected to match the preliminary estimate, -14.9).
In addition, two European Central Bank officials will speak. Piero Cipollone, a member of the Governing Council (who replaced Fabio Panetta last autumn), will voice his opinion, along with his colleague Frank Elderson.
On Thursday, the third (final) estimate of the US GDP growth for the fourth quarter of 2023 will be published. According to forecasts, the third estimate will match the second estimate (3.2%). Although surprises are not ruled out – remember how estimates of the US GDP for the third quarter fluctuated (4.9% - 5.2% - 4.9%).
Labor market data – the number of initial claims for unemployment benefits – is unlikely to have any impact on the EUR/USD, as the indicator is expected to come out practically at the same level as last week (214,000 versus 210,000).
Another relatively important report is in the real estate market. On Thursday, we will learn about the volume of pending home sales in the US. In January, the volume declined (both monthly and annually), while in February, positive dynamics are expected (1.5% m/m and 2.4% y/y).
During the European session, labor market data for Germany will be published. According to forecasts, unemployment in March remains at the level of February (5.9%). The number of unemployed is expected to increase by 11,000 (compared to a growth of 10,000 in February).
Christopher Waller, a member of the Federal Reserve Board of Governors, will also speak. In one of his recent speeches, he said that the Fed does not need to rush with interest rate cuts. Waller said he will need to see more evidence that inflation is cooling before he is willing to support interest rate cuts. Again – Waller voiced these words before the release of the latest inflation reports, so on Thursday, he may take a more hawkish stance.
The core PCE index will be published – an inflation indicator that is closely monitored by the Federal Reserve. In January, the core personal consumption expenditures index fell to 2.8% on an annual basis. The indicator has been declining for the sixth consecutive month, and according to the forecasts of most experts, this trend is likely to continue in February: a decrease to 2.7% is expected. If the index comes out at the forecast level (not to mention the "red"), the dollar will come under pressure, given the dovish outcomes of the last Fed meeting.
By the way, after this report, Fed Chair Jerome Powell will speak at an economic conference. Considering the focus of this event, he may comment in the context of the Fed's monetary easing prospects.
By the end of the upcoming week, it will become clear whether the EUR/USD pair will return to the area of the 9th figure (in order to subsequently aim for conquering the 10th price level) or whether the bears will maintain their grip and pull the price towards the 7th figure. In my opinion, last week's downward movement was an emotional response from the market. After all: the Fed maintained its dovish stance and did not make a big deal of the influation situation with February's reports on CPI and PPI (according to Powell, these are "bumps on the road to the target level"). And if the core PCE index comes out in the red, it will be difficult for dollar bulls to argue their advantage.
Therefore, we should be cautious with short positions on the EUR/USD pair. You may consider shorts when the price consolidates in the area of the 7th figure, below the support level of 1.0770 – this is the lower boundary of the Kumo cloud, coinciding with the lower Bollinger Bands line on the D1 timeframe.
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