Week Ahead: 3 factors that could jolt EURUSD

We return to the usual servings of tier-1 macroeconomic data for major economies, where inflation is all the rage, after highly anticipated central bank meetings this week have come and gone.

The final week of Q1 2023 also has the added spice of hearings on Capitol Hill to uncover “what went wrong”, as Fed Chair Jerome Powell asked publicly recently, in Silicon Valley Bank’s collapse.

Here are the economic data releases and events that could move global markets in the coming week:

Monday, March 27

• CNH: China February industrial profits
• EUR: Germany March IFO business climate
• GBP: BOE Governor Andrew Bailey speech

Tuesday, March 28

• AUD: Australia February retail sales
• USD: US Senate hearings on Silicon Valley Bank begins; US March consumer confidence

Wednesday, March 29

• AUD: Australia February CPI
• Crude: Weekly EIA Crude Oil Inventories
• WSt30_m: House panel on recent US bank failures

Thursday, March 30

• EUR: Germany March CPI; Eurozone March economic and consumer confidence
• USD: US weekly jobless claims; US 4Q GDP (third estimate); speeches by Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin

Friday, March 31

• JPY: Japan February unemployment, retail sales, industrial production; March Tokyo CPI
• CNH: China March PMIs
• EUR: Eurozone February unemployment and March inflation; Germany March unemployment
• GBP: UK GDP (final)
• USD: US February PCE Deflator, personal income and spending; New York Fed President John Williams speech

 

Here are 3 events in the week ahead that could trigger big moves for the world’s most-traded FX pair, EURUSD, in the week ahead:

 

1) Hearings on Silicon Valley Bank failure

The US government is under pressure to find out why and how Silicon Valley Bank collapsed, despite all the regulatory oversight and safeguards that have been put in place since the global financial crisis more than a decade ago.

Note that fears over further banking turmoil are still plaguing market sentiment, as evidenced by the selloffs in banking stocks and the US dollar of late.

Even during Fed Chair Jerome Powell’s press conference on March 22nd, the greenback’s larger move came following comments surrounding US financial stability, rather than the conventional monetary policy talking points pertaining to the Fed’s inflation target.

Should these mid-week hearings before the House and Senate reveal new information of failings pertaining to the US banking sector, further stoking contagion fears, that may trigger further declines for the US Dollar while lifting EURUSD higher.

 

2) Fed Speak

Fresh from the just-concluded FOMC meeting, Fed officials are released back into the public arena, with markets eager for more clues about the Fed’s thinking about its own rate-hike cycle.

Chair Powell did reveal that the FOMC even considered pausing its rate hikes, in light of the recent banking turmoil.

The FOMC’s own projections (a.k.a. Dot Plot) still point to a 5.1% rates peak, suggesting that the end is near for the Fed rate hikes that began 12 months ago and resulted in 475 basis points worth of hikes so far.

As things stand, markets are now fully expecting the Fed to instead, CUT its benchmark rates by 50 basis points by September.

Should the upcoming speeches by Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin on Thursday push back on such forecasts, such hawkish language may help restore the US dollar, provided there aren’t any further negative developments surrounding the US financial sector in the interim.

 

3) US, Eurozone inflation

In what could be a frantic Friday for EURUSD, traders will be met with fresh inflation data out of both sides of the Atlantic.

Here are the market forecasts for these tier-1 prints:

• Eurozone March CPI*: 7.5% (lower than February’s 8.5% year-on-year advance)
   
• US February Core PCE Deflator**: 4.7% (matching January’s year-on-year figure)

*CPI = consumer price index, which is used to measure headline inflation

**The US Core PCE print is the Fed’s preferred way of measuring inflation (as opposed to the CPI)

As things stand, inflation in both the US and Eurozone economies remain much higher than their respective central banks’ 2% target.

Markets are set to bid up the currency of the economy whose official inflation print produces the higher gap above market forecasts.

In other words, EURUSD traders are set to react using this simplified formula:

Higher-than-expected inflation = more rate hikes = stronger currency

And here’s why:

• Evidence of stubbornly-elevated inflation should require more rate hikes by the central bank.
• The prospects of more rate hikes for an economy (relative to its peers) tend to translate into more currency strength.

 

 

Overall, EURUSD’s performance over the remainder of Q1 2023 may be largely dependent on how the confluence of above-listed factors play out over the coming week.

 

Key levels for EURUSD

RESISTANCE

• 1.09297 intraday peak on March 23rd
   
• 1.09426 - 50% Fibonacci retracement from January 2021 to October 2022 plummet
   
• 1.10329 early-February peak

 

 

SUPPORT

• 1.0800 psychologically-important level, also resistance for mid-Feb cycle high
   
• 50-day SMA (simple moving average)
   
• 1.0690 resistance turn support

 

 

From current levels (around 1.083) at the time of writing, Bloomberg’s FX model points to a 73% chance that EURUSD will trade within the 1.0688 – 1.0981 range over the next week.

 

 

Week Ahead EURUSD Silicon Valley Bank inflation rate hikes Fed speak