The week ahead the market will bring a key set of important eurozone macro data releases including FOMC meeting followed by a Press Conference.
The combination of weaker dollar last week, dovish ECB message the other week and growing pessimism in pricing on this week’s FOMC meeting makes the single currency weakness on hold.
Data studies suggest that the eurozone growth set to remain weak as the economic fundamentals are weak and the outlooks remain dull. Moreover, recent ECB dovish tone should cap the incoming rallies at crucial resistance levels.
- January 2019 Industrial production up by 1.4% in euro area vs. -0.90% in December 2018
- Euro area annual inflation rate was 1.5% in February 2019, up from 1.4% in January 2019
Data preview: FOMC meeting and EZ PMIs among top-tier data/events to keep forex traders busy. We are also focusing on March 21-22 EU summit.
Global economic growth has slowed, and downside risks to growth have increased in the past few months. In a recent communication, major central banks have changed the tone. Back in January 2019, the Fed changed the sound to dovish followed by ECB. Now the market is expecting a rate cut from RBA.
- FOMC: Market participants focus on the Fed’s dots lot. We expect another hike will take place in either September 2019 or in December 2019. In case of continued dovish bias could open the G10 currencies to squeeze especially AUD, EUR, and NZD.
- Westpac said, “The FOMC’s March meeting will not only provide an updated qualitative assessment of the outlook, but also the first set of revised quantitative economic forecasts since the Committee’s collective dovish turn at the start of this year.”
- Bill Diviney at ABN AMRO said “We expect Chair Powell to strike a somewhat dovish tone in his press conference, noting the continued global economic uncertainty given the lack of stabilization in the global industrial sector. However, we also expect him to acknowledge the substantial improvement in domestic financial conditions since late last year, and signs of resilience in domestic demand, such as the rebound in consumer confidence.”
On dot plot, he said, “At the same time, while we expect a shift lower in the dots rate hike projections to show just one rate hike in 2019, this might disappoint financial markets, which now price in around 6bp of rate cuts by year end.”
- Richard Franulovich at Westpac said, “The model goes into a consequential FOMC meeting this week sticking to its guns with a 21% USD short.”
- On PMIs data Deutsche Bank said, “In March we expect some stabilization in the manufacturing index, which we see arriving at 49.1, while we see services PMI continuing to rebound to 53.1.”
EURUSD rose slightly further on Monday, traders awaiting the FOMC meeting later this week. Recent recovery helped the single currency closed higher for six days out of seven trading sessions but the EURSUD failed to breach 50, and 100MAs spread between 1.1360-1.1365 levels.
Weaker dollar and buying in G10 currencies pushed the single currency to almost 50.0% reaction of 1.1570-1.1175 fall. We believe weakness in the weekly price action is looking evidently, bears attitude at this stage appear to be in no mood to give up their strength; moreover, the 1year descending trendline is still active on the weekly chart. We see the bullish signal on the daily time frame along with the weaker dollar are the only factors healing the single currency since a week.
Key support levels find at 1.1300, 1.1230 and 1.1170. The flip side, resistance levels to watch out are 1.1370 and 1.1420/1.1440.
In case of an ultra-dovish FOMC meeting could push the price further higher to 1.1500/1.1530 if 1.1440 taken out.
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