Minutes and Inflation to Guide EURUSD Direction

The minutes from the last FOMC meeting are expected to reiterate previous messaging, while EU officials are expected to note that inflation is declining slowly again.

Confirming Prior Guidance

In addition to the minutes, five FMOC members are scheduled to give public remarks following their release on Thursday. While this presents an opportunity for volatility if comments diverge from prior statements, the overall sentiment should echo Fed Chair Jerome Powell's hawkish remarks after the last meeting.

Data published since, like the strong jobs report and resurging inflation adding pressure, have largely backed the Fed's view that it is too early to pivot to an accommodative policy stance. Markets expect the first interest rate cut occurring no earlier than June, as the US economy demonstrates resilience and is projected to decelerate to 2.9% annualised growth moderately. The minutes are unlikely to indicate a shift towards easing in the near future. Additional confirmation of the higher-for-longer narrative could bolster yields and the dollar.

Seeking to Maintain a Firm Approach

The ECB has several speakers scheduled this week, but divisions between hawks and doves will likely remain prominent. In contrast with the US, European hawks have less economic data to cite when making a case for a more hawkish policy. After Germany's inflation rate was confirmed as the lowest in over 30 months, expectations are that the final reading of Eurozone CPI will corroborate the preliminary figure of 2.8%, down slightly from the previous reading of 2.9%. Slow forecasted growth across Europe is expected to exert downward pressure on prices and incentivise the ECB to be the first major central bank to shift toward easing.

Recent strong data from the US is likely to sustain higher yields and support the dollar relative to other currencies, while investors maintain reservations regarding the euro. Four interest rate cuts by the ECB are forecast this year, with weaker growth fueling declining inflation. After ECB President Christine Lagarde warned of potential second-round effects, attention could now turn to wage growth trends. This development would tilt the bias in favour of maintaining higher interest rates. However, with stronger US and weaker European yields, downward pressure on EURUSD could persist unless upcoming economic indicators unexpectedly point to the Eurozone achieving unforeseen growth.

EURUSD in Inverse H&S

The EURUSD currency pair is moving towards 1.0806, the neckline of a potential inverse head and shoulders (H&S) pattern. A break higher could see prices accelerate to 1.0822 in the near future, with the medium-term target at 1.09 potentially exposed. This scenario may play out whether the market pulls back from or continues past the double-top neckline. In the event that buying pressure abates and the pair declines below both 1.0762 and the 1.0732 shoulder level, the likelihood of a retest and slide under 1.07 will increase.​

Source: SpreadEx / EURUSD

Key Takeaways

The minutes from the last FOMC meeting are expected to reiterate the Fed's hawkish stance, while EU officials anticipate inflation in the Eurozone declining slowly. Recent strong US data and higher inflation support the Fed's view that an interest rate cut is unnecessary. In contrast, slower growth across Europe is expected to exert downward pressure on prices and encourage the ECB to ease policy sooner.