The February preliminary EU inflation data added to the full sweep of hotter than expected inflation prints across Europe after Germany’s hot number yesterday. The core EU CPI number was +5.6% YoY, a full 0.3% above the 5.3% expected and the 5.3% high of the cycle in January. European short rates were already ramping so aggressively into today that even this data point failed to make an additional impact as German 2-year yields, for example, have ramped from below 2.9% at the start of this week to a high just above 3.25% today before support finally came in for bonds.
The sterling had rallied hard recently after a stronger than expected Service PMI and then on the post-Brexit settlement deal over Northern Ireland. EURGBP teased a move back into the lower zone this week, only to have the rug torn out from under sterling by the cavalcade of hot EU inflation prints, but more importantly in yesterday’s case on Bank of England Governor Bailey’s rhetoric. Mr. Bailey is apparently not yet for returning to a more cautious stance after the last meeting’s confident forecast for inflation to return to below 2% by the end of next year. Bailey said “I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more....nothing is decided.” EURGBP is choppy here and failed to sustain the move above 0.8900 last time and European data is set to get quieter until the March 16 ECB meeting. The next UK CPI print is not up until March 22. The pair has to prove itself beyond the range extremes of 0.8725 to 0.8975 of this year for next steps.
EUR/USD Weekly Analysis: US Inflation Rises by Most in 6 Months.
The EUR/USD weekly forecast is bearish as the Fed will likely raise and keep rates high for longer due to the US economy’s resilience. According to Eurostat’s Thursday report, Eurozone inflation was only slightly higher than initially anticipated in January. This confirms that price growth has long since passed its peak.
Data from the Commerce Department revealed that consumer spending, which makes up two-thirds of US economic activity, increased by 1.8% in January, beating analyst expectations and representing the highest growth in nearly two years.
The Fed’s favored inflation indicator, the personal consumption expenditures (PCE) price index, also increased by 0.6% last month, the most in the previous six months. These reports followed the hawkish FOMC minutes and the jobless claims report that surprisingly fell. They all point to a resilient economy despite rising rates.
The daily chart shows the EUR/USD declining after breaking below the 20-SMA and the RSI below 50. This comes after the price found resistance at the 1.1004 key level. Bears took over and pushed the price lower to the 1.0526 support level.
At this point, bears might pause before the price breaks below the support and the downtrend continues. However, the pause might allow bulls to come in and retest the 20-SMA as resistance.
The USD/CAD weekly forecast is bullish as investors bet on a more aggressive Fed amid positive data from the US.
The pair had a bullish week as American economic data sparked bets on how aggressively the Federal Reserve will increase interest rates.
A US report released on Friday showed an annual increase in export prices of 0.8% as opposed to expectations for a 0.2% decline. According to figures released on Thursday, weekly unemployment benefit claims were lower than expected, while producer prices rose monthly in January. Retail sales figures released on Wednesday showed a considerable increase, while CPI data from Tuesday indicated persistently rising inflation.
There were also hawkish comments from two Fed officials on Thursday and forecasts for three additional Fed rate increases this year from Goldman Sachs and Bank of America.
The daily chart shows USD/CAD in a bullish move as the price trades above the 22-SMA and the RSI above 50. This follows a bounce from 1.3300, a strong support level. The previous move was bearish as the price respected the 22-SMA as resistance, and the RSI stayed below 50. recent USD/CAD price movements have been quite choppy. The price has stayed close to the SMA and the RSI close to the 50-mark. Neither bears nor bulls have committed to pushing the price to extreme levels of overbought or oversold. This is a sign that the price is consolidating on a larger timeframe. Currently, bulls are in control but face the 1.3450-1.3500 resistance zone. A break above this level will likely increase the price to 1.3701. Otherwise, it will retest the 1.3300 support.
USD/CAD was volatile last week following the FOMC meeting, jobs, and PMI data from the US. There was also a GDP report from Canada.
Data released on Tuesday suggested that Canada’s economy likely slowed in December after expanding modestly in November, in line with forecasts.
The US central bank decreased its Wednesday rate hike to a quarter percentage point after a year of bigger rate increases. It disregarded the extensive list of variables driving up prices, such as the pandemic and the Ukraine war. The number of new jobs in the US increased significantly in January, jumping by 517,000, well above the expected 185,000 increase in nonfarm payrolls. The unemployment rate of 3.4% was a more than 53-and-a-half-year low.
The daily chart shows USD/CAD trading at the 22-SMA, a pivotal level. The RSI trades at the 50-level, showing bulls and bears have almost equal momentum. With a strong bullish candle, the price has pushed off the 1.3303 support level. It has, however, paused at the 20-SMA resistance. A break above the SMA in the coming week could mean a bullish takeover. This comes after a bearish move characterized by many pullbacks, with the price sticking close to the 20-SMA. This shows that the bears were not fully committed to the move. If bulls take control, they will have to face the 1.3501 resistance. A break above this level would then lead to 1.3701 resistance. On the other hand, if bulls cannot trade above the 20-SMA, the bearish trend will likely continue.