Euro Week Ahead Forecast: Fed’s Powell Testimony Will Drive Market Sentiment

EUR/USD Price, Chart, and Analysis

• Fed chair Powell’s hand will be on the Euro’s tiler.
• Euro Area rate interest rates – how high will they go?

Most Read: Euro Area Core Inflation Prints Fresh Record High, EUR/USD Steady

The latest Euro Area inflation release ( see above) showed price pressures remaining stubbornly high in the single block. The ECB meets in mid-March to announce its next interest rate hike – 50bps already fully priced-in – but it’s where the central bank goes after there that is causing market volatility. The current rate of 2.50%, soon to be 3.0% on March 16, is now being seen by some in the market as high as 4% by the end of Q2/early Q3 as the ECB doubles down on inflation. That there is little to no growth in the Euro Area does not seem to worry President Lagarde who continues to make inflation the central bank’s overriding priority.

Next week sees two heavyweight US economic events, Fed chair Jerome Powell’s testimony to the US Banking Committee and the, delayed, US Non-Farm Payrolls report. Both these events have significant market-moving potential, especially if chair Powell continues to talk up further rate hikes, while last month’s blowout US Jobs Report, more on an annual technicality, will see wide forecasts leaving the US dollar at risk of highly volatile end of the week trade.

For all market-moving events and economic data releases, see the real-time DailyFX Calendar

EUR/USD trades a fraction above 1.0600 with little or no inclination to break one way or another. With next week’s high-impact US events and the ECB policy decision the week after (March 16), the pair is likely to remain in a tight trading range ahead of chair Powell’s testimony. Initial support around the 1.0535 level, resistance at 1.0700.

EUR/USD Daily Price Chart – March 3, 2023

Chart via TradingView

Retail Traders are Undecided

Retail trader data show 56.01% of traders are net-long with the ratio of traders long to short at 1.27 to 1.The number of traders net-long is 9.20% higher than yesterday and 5.43% lower from last week, while the number of traders net-short is 2.18% lower than yesterday and 0.52% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.