EUR/USD Mixed as EU Raises GDP Forecast, Awaits US Inflation Update

  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

The European economy avoided a contraction in the fourth quarter according to recent preliminary data, with the second reading expected on Tuesday. Today the European Commission projected that the Euro Area GPD will expand in Q4 by 0.1% and stagnate to 0.0% in the first quarter of 2023. It also upgraded its forecast for the current year, expecting growth of 0.9%, from 0.3% in the autumn forecast. [1]

The Commission also believes that inflation peaked last year and lowered its headline CPI projections to 5.6% in 2023 and 2.5% in 2024 (from 6.1% and 2.6% previously). ECB President Lagarde acknowledged some progress last week, speaking of "more balanced" risks to the inflation outlook. However, the bank intends to increase rates by another 50 basis points in March and to not stop there, in an overall very hawkish stance. [2]

Things in the United Sates are much better since price pressures have been moderating for a while now, with Chair Powell alluding to the fact again last week, saying that "the disinflationary process" has begun. This has allowed the Fed to slow down the pace of tightening, but Mr Powell insisted that the bank needs to increase rates further and stay at a restrictive level. [3]

Markets now gear up for the January CPI inflation figures, which are due on Tuesday and could affect the Fed's thinking and the trajectory of the US Dollar. Headline and Core CPI had both eased to the lowest levels in over a year in December.

EUR/USD slumped over the past two weeks, since the recent blockbuster jobs report followed by hawkish Fed commentary led to a repricing around the rate path. Markets now embrace the Fed's more aggressive dot-plot, with CME's FedWatch Tool assigning the highest probability to a terminal rate of 5.25%.[4]

The pair is subdued today below the EMA200, retesting the critical 23.6% Fibonacci of the September low/February high advance. A clear break could open the door for the 38.2% level (1.0481-51), although a catalyst would be needed of that and the downside seems well protected.

Trade the News: View our Economic Calendar

Despite the recent decline, the ECB has out-hawked its US counterpart and looks set to hike rates more this year. This is supportive for EUR/USD which can find renewed vigor towards 1.0930, although sustained strength past 1.1067 may prove harder in the near-term.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 13 Feb 2023 https://ec.europa.eu/commission/presscorner/detail/en/ip_23_707

2

Retrieved 13 Feb 2023 https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is230202~4313651089.en.html

3

Retrieved 13 Feb 2023 https://www.youtube.com/watch

4

Retrieved 15 Apr 2024 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.