Today, the Catholic world continues to celebrate Easter, which means that the main trading floors of the currency market will be closed. Nevertheless, the coming week promises to be interesting. The release of key macroeconomic statistics in Europe and the US will determine the dynamics of many currency pairs, and above all, it concerns the euro / dollar pair.
Today, the economic calendar for the currency pair is almost empty. Only Chinese data have been able to revive the situation somewhat, especially since the index of industrial activity PMI from Markit came out at the level of 51.0, this is the minimum level since November last year. The structure of the indicator shows that first of all, the level of new orders dropped, while the prices for products grew at a faster rate than in the previous month. The US dollar reacted minimally to these news (most of all, the Australian dollar sagged), especially since the published data is somewhat distorted. In February, China celebrated the New Year on the lunar calendar, so a long vacation influenced the dynamics of industrial production growth. In addition, since June last year, this indicator is above the 50th mark, which indicates the expansion of the manufacturing sector.
In other words, despite the fact that the Chinese PMI came out in the "red zone", the US currency almost ignored this fact. But the introduction of new duties by the PRC intensified pressure on the dollar. Despite the fact that the Chinese warned about this last week, the very fact of suspension of tariff benefits for 128 items of goods from the US still impressed the market. During the European session, greenback weakened the entire basket of currencies, especially paired with the euro and the pound.
However, today's price fluctuations should not be taken seriously, given the expected events of the following days. As early as Wednesday, we learn preliminary data on the growth of European inflation. After a three-month recession, experts forecast the growth of the indicator, up to 1.4% in annual terms. The core inflation index (that is, without volatile prices for energy and food) also promises to show positive dynamics, rising to 1.1%.
The unemployment rate should drop to a record-low value (8.5%), continuing the trend of the last year and a half. If these figures come out at least on the forecast level, the European currency will receive a strong impetus for its growth. The likelihood of the completion of the stimulus program within this year will increase again, especially against the backdrop of the ECB's rhetoric.
Last week, for example, Ewald Nowotny admitted that the regulator is likely to decide in reducing its bond purchases at one of the summer meetings, "if the dynamics of economic growth continue." In his view, such a scenario "can not be ruled out," especially after the completion of QE. It should also be taken into account that the ECB's "hawk wing" in June will be strengthened by the arrival of Luis de Guindos, who will replace Vitor Constancio as vice-president of the Central Bank.
Here, it is worth emphasizing that without such sustained inflation, such intentions will not be realized, despite the ECB's explicit intention to curtail monetary stimulus. Therefore, if inflation in the euro area returns to growth, the market will receive a strong enough signal to action and the European currency will again be in demand.
The American currency is also in anticipation of important data. On Friday, Non-Farms will be published, and on Wednesday, a report from ADP. Analysts again expect unemployment to fall to four percent, while the number of people employed in the non-agricultural sector should drop to 190,000 (in February a record growth of 313,000 was recorded). The ADP report, which will precede the Non-Farms, should also show negative dynamics in comparison with the previous month.
It should be emphasized that if the above indicators even exceed forecasts, the main focus of the market will be riveted to another indicator, the level of hourly wage. Fed Chairman Jerome Powell has repeatedly expressed concern that wages are growing extremely weak against the backdrop of a steady strengthening of the labor market. The consensus forecast indicates a positive trend: 0.3% m / m and 2.7% y / y. If the forecast fails, the dollar will be under considerable pressure, as weak inflation will eclipse all the positive changes in the US economy, including GDP growth. It is also worth noting that on Friday evening (after the release of Non-Farms), the head of the Fed is expected to speak, who can comment on the latest published data in the context of the prospects for monetary policy.
Thus, the euro / dollar pair is on the threshold of important events. And the technical side of the pair is at a crossroads. Bulls EUR / USD needs to gain a foothold above 1.2385 (the upper limit of the Kumo cloud on the daily chart) to confirm the northern trend, while the pair's bears need a larger jump (below 1.2145) to resume sustained downward movement. While the price fluctuates in the above range, you can consider trading within the price boundaries. But the fundamental background is likely to redraw the technical picture of EUR / USD this week. Everything will depend on the dynamics of the European consumer price index and the inflationary component of Non Farm.
