Week Ahead: EURUSD to reflect ECB vs. Fed ‘path to normal’
Fresh from the shockingly-low August US nonfarm payrolls print, market participants would be eager to get the thoughts of Fed officials from their mid-week speeches about whether the US central bank can still press ahead with its tapering plans amidst an apparent hiring slowdown.
Throw in an ECB that may have been given cause to tilt hawkish, and the tapering debate could be revived in earnest across global financial markets.
Here are the other scheduled economic data releases and events that could move markets in the coming week:
Monday, September 6
- EUR: Germany July factory orders
- US markets closed
- US President Joe Biden to renominate Jerome Powell as Fed Chair this week?
Tuesday, September 7
- CNH: China August trade
- AUD: Reserve Bank of Australia policy decision
- EUR: Germany July industrial production and September ZEW survey expectations
- EUR: Eurozone 2Q GDP (final print)
Wednesday, September 8
- CAD: Bank of Canada rate decision
- USD: US July JOLTS job openings
- USD: Fed Beige book
- USD: Fed Speak – Dallas Fed President Robert Kaplan, New York Fed President John Williams
Thursday, September 9
- CNH: China August CPI and PPI
- EUR: Germany July trade
- EUR: European Central Bank rate decision
- USD: US weekly initial jobless claims
- EIA crude oil inventory report
Friday, September 10
- EUR: Germany August CPI (final print)
- GBP: UK July monthly GDP and trade
- CAD: Canada August unemployment
- USD: US August PPI
Recall that Fed Chair Jerome Powell, during his virtual Jackson Hole speech in late August, sought to divorce the idea of the Fed’s tapering as an immediate precursor to a rate hike. However, he did say he was open to throwing his weight behind easing up on the central bank’s support measures by year-end.
But such commentary was delivered before the stunning slowdown in US hiring last month.
At the same time, across the Atlantic Ocean, the European Central Bank may have been given cause to start contemplating the unwinding of its pandemic-era stimulus measures. Eurozone inflation hit 3% in August, a level not seen since 2011 and well above the central bank’s current target.
Should members of the ECB’s Governing Council start to sound more hawkish after their policy meeting in the coming week, that could spur more gains for EURUSD, especially at a time when the Fed’s tapering plans have grown more uncertain.
From a technical perspective, EURUSD appears to have been overbought, having breached its upper Bollinger band.
A hawkish-sounding ECB this week could be the catalyst for more sustained gains for the shared currency, allowing euro bulls to take advantage of the perceived wobble in the Fed’s tapering plans.
Such a scenario could place the world’s most-traded currency pair on a path towards the 1.1975 resistance line last seen in June.
Alternatively, should ECB President Christine Lagarde stick to her dovish guns in the coming week, that could prompt the euro to unwind some of its recent gains and move back closer to its 50-day simple moving average against the US dollar.