Euro week ahead: EUR/USD downside in focus with US CPI ahead

Euro fundamental forecast: bearish

Over the past two weeks, the euro sank 0.6% against the US dollar. Not only was this the worst two-week performance since September, but if you measure from a two-week interval, this ended a nine-consecutive winning streak. The last time this happened was back in 1990.

All things considered; it was a pretty quiet week from an economic data perspective. Preliminary German inflation data for January showed that CPI clocked in at 8.7% y/y against the 8.9% forecast. Still, markets were likely focused on the United States this past week.

That is because markets have been receiving a healthy dose of reality since January’s US non-farm payrolls report blowout. Coupled with relatively hawkish Fedspeak and another solid round of jobless claims data, markets have been rapidly repricing the interest rate outlook.

This can be seen in the chart below. Since the day before NFPs, markets have added two Fed rate hikes to the year-end horizon. As such, this is bringing anticipated tightening closer to what the central bank is envisioning.

The week ahead also lacks notable Euro Area economic event risk outside of the second round of fourth-quarter GDP estimates. Rather, the focus will remain on the US. The next round of CPI data is due. The headline rate is seen slowing further to 6.2% from 6.5%. A higher-than-expected outcome could easily continue adding momentum to the euro’s reversal.

Markets are fading 2023 Fed rate cut bets

EUR/USD technical analysis

On the daily chart, EUR/USD has confirmed a breakout under a bearish Rising Wedge. The chart formation has its beginnings in September 2022. Recent losses have opened the door to resuming last year’s dominant downtrend. Key support below could be the 100-day Simple Moving Average (SMA). The latter may reinstate a near-term upside focus.

EUR/USD daily chart

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