The economic calendar for the upcoming week is packed with significant events and releases. EUR/USD traders will likely shift their focus from Donald Trump to more traditional fundamental factors. Let's take a closer look at the key events in the final week of January.
The Federal Reserve
On Wednesday, January 29, the results from the Federal Reserve's first meeting of the year will be announced. The outcome of this January meeting is largely expected—according to the CME FedWatch Tool, there is a 98% probability that the Fed will keep all monetary policy parameters unchanged, maintaining the current interest rate at 4.50%.
Given this baseline scenario, it is unlikely to have a significant impact on the EUR/USD pair. Instead, the market's main focus will be on the accompanying statement and Fed Chair Jerome Powell's commentary. The outlook for potential rate cuts in future meetings remains uncertain. For instance, the probability of maintaining the status quo in March is 72%, while it stands at 55% for May. Additionally, the December dot plot predicts two rate cuts in 2025, likely occurring in June and September.
Uncertainty continues due to recent U.S. inflation data, which has raised more questions than answers because of its mixed results. The core Consumer Price Index (CPI) fell short of expectations, slowing to 3.2% year-over-year, compared to a forecast of 3.3%. Meanwhile, the headline CPI met expectations and accelerated to its highest level since July 2024. Similarly, the headline Producer Price Index (PPI) increased to 3.3%, marking the fastest pace since March 2023, while the core PPI remained unchanged at 3.5%.
In summary, while headline inflation in the U.S. continues to rise, core inflation has effectively stalled—any minimal or occasional decline in the core CPI does not significantly impact the overall picture. This situation suggests that the Fed may adopt a more hawkish tone, potentially undermining former President Trump's hopes for a rate cut in the upcoming months. If this scenario comes to pass, the first rate cut is unlikely to occur before June, which would bolster the U.S. dollar, particularly against the euro.
ECB
On Thursday, the European Central Bank (ECB) will announce the results of its January meeting. Most analysts expect the ECB to cut interest rates by 25 basis points, despite rising inflation in the eurozone. Recently, many ECB officials have hinted at another round of monetary easing due to weak economic growth in the region. Notably, after its December meeting, the ECB downgraded its GDP growth forecast for the eurozone in 2024 to 0.7%, down from the 0.8% expected in September.
While the market has already priced in the expected outcome of the ECB meeting, the tone of the accompanying statement could still influence the value of the euro. Analysts at Societe Generale predict that the ECB's message will be balanced rather than overly dovish, reflecting divisions within the central bank. For instance, ECB Governing Council member Robert Holzmann recently suggested delaying further rate cuts.
If the statement includes hawkish elements—such as concerns about rising inflation—the euro could strengthen. Conversely, if the ECB's rhetoric is similar to December's, sellers may take advantage of the situation to push the EUR/USD pair lower.
Macroeconomic Reports
The new week will feature several critical economic releases. Here are the main highlights:
Monday
On Monday, January 27, Germany will release indices from the IFO Institute. Specifically, the January business environment indicator is expected to decrease to 84.4, a slight dip from December's reading of 84.7. While this signifies only a minimal decline, it raises concerns about a potential downward trend if the index continues to fall for a third consecutive month.
Additionally, on the same day, China will publish the PMI index for the manufacturing sector. In December, this index dropped to 50.1 points, coming close to the "red line." For January, forecasts suggest that the indicator will remain at the same level as December. However, if the index unexpectedly falls below 50.0 and enters the contraction zone, it could provide indirect support for the dollar due to a rise in risk-averse sentiment.
Tuesday
The main release on Tuesday will be the Conference Board US Consumer Confidence Index. After experiencing two months of growth in October and November, reaching 112 points, the index fell sharply in December to 104.7 points. However, a modest increase is expected in January, with a forecast of 105.9 points.
Additionally, on Tuesday, the US will release data on the volume of orders for durable goods. A positive trend is also anticipated in this area. In December, the volume of orders decreased by 1.1% (with a 0.1% decline when excluding autos), while a growth of 0.1% is expected in January (excluding autos, a growth of 0.3% is predicted).
Wednesday
On this day, the U.S. will release a preliminary estimate of the balance of international trade in goods. However, all traders will likely be focused on the results of the Fed's two-day meeting, as it is expected to be the main news of the day.
Thursday
On Thursday, during the European session, we will receive the results of the ECB's January meeting. A few hours before this event, data will be released regarding the growth of the European economy. Forecasts suggest that the GDP increased by only 0.1% in the fourth quarter of last year. If this indicator falls into negative territory, the euro will come under significant pressure, impacting the EUR/USD pair.
During the American session, another key macroeconomic report will be published, revealing the dynamics of U.S. GDP growth for the fourth quarter of 2024. Preliminary forecasts indicate that the American economy grew by 2.7%, a decrease from 3.1% in the third quarter.
Friday
On the last trading day of the week, the US will release the most significant inflation indicator, closely monitored by members of the Fed. This indicator is the core PCE index for December. In November, the index was reported at 2.8%, with forecasts predicting an increase to 2.9%. Although this figure does not indicate a slowdown in US inflation, dollar bulls reacted negatively to the announcement. In reality, the index has stagnated at 2.8%, following two months at 2.7% and two months at 2.6% prior to that. Preliminary forecasts suggest that December's figure will again be 2.8%, indicating three months of stagnation. Even a slight increase in the index (2.9% or higher) would provide considerable support for the US dollar.
Technical Analysis
The EUR/USD currency pair is currently trading near 1.0490, which coincides with the upper Bollinger Band on the daily chart. If buyers cannot maintain momentum above this level, a pullback to 1.0350 (the middle Bollinger Band and the Tenkan-sen/Kijun-sen lines) is likely. On the other hand, a successful breakout above this resistance could target 1.0610 (the upper boundary of the Kumo cloud on the daily chart). The pair is at a pivotal point, and its direction will be influenced by the outcomes of the upcoming FOMC and ECB meetings.
