At the beginning of 2024, the EUR/USD pair demonstrated a pronounced downtrend. Over the course of five weeks, the price consistently declined, reflecting the U.S. dollar's broad strength. But February turned out to be fatal for the EUR/USD bears: the downtrend choked and the pair was stuck in a sideways trend. Since then the price has been moving around the 7th figure for the second consecutive week. Although the bulls tried to climb above 1.0800 and the sellers tried to fall below 1.0700, the pair still returned to its previous positions (trading closed at 1.0777).
Traders need a reason to break out of the "vicious circle", which the pair has been facing since February 5. The upcoming week is not full of significant reports, but at the same time the economic calendar is not completely empty. Let's take a look at the main events of the five-day period.
Monday - Tuesday
The first days of the upcoming week will not bring us important reports or other significant events. On Monday, February 19, traders may be interested in the Bundesbank report. The hawkish notes of the document may support the euro, however, as a rule, this report has a weak influence on the EUR/USD pair.
On Tuesday, the US will publish data on leading indicators, which includes 10 components (from consumer expectations to building permits). But this indicator also has a weak influence on the market.
It seems that in the first few days of the week, the pair will continue to trade based on the previous week's momentum, guided by the level of risk sentiment and Treasury yields. It is worth noting that risk appetite increased in the second half of the previous week: strong corporate earnings compensated for the negative impact of concerns related to persistently high inflation levels in the United States.
Wednesday
On Wednesday, February 21, the minutes of the Federal Reserve's January meeting will be published. Following this meeting, the U.S. central bank no longer mentioned that it would further tighten monetary policy "if necessary." At the same time, the Fed ruled out a rate cut in March but left the door open for subsequent meetings. The central bank indicated that the rate will depend on the dynamics of key macroeconomic indicators, primarily in the areas of inflation and the labor market.
The results of the Fed's January meeting provided weak support for the greenback. The key theses of the accompanying statement had a "moderately hawkish" tone, while the market clearly expected more tougher wording. In particular, the central bank will wait until they're confident that inflation is reliably moving to their 2% target.
The hawkish tone of the minutes of the January meeting may provide support for the U.S. dollar, especially since this meeting took place before the release of the January Nonfarm Payrolls. Judging by the recent statements of Fed members, the minutes will reflect the need to maintain a wait-and-see position in the perspective of the upcoming (March) meeting, while future prospects will depend on incoming data. This has already been fully played out by the market, so it will not have any significant impact on the greenback.
In my opinion, this is the baseline scenario: the minutes will not reveal anything new and will not trigger strong volatility. Of course, there are possible alternative, less likely scenarios. For instance, if the central bank allows (even hypothetically) keeping the rate at the current level until the end of 2024. This would be a hawkish scenario that strengthens the dollar across the market. However, the opposite scenario is also possible. For instance, if the minutes echo the statements made by Chicago Fed President Austan Goolsbee. He is a representative of the dovish wing of the Fed who recently stated that strong employment data in the U.S. "does not mean that rate cuts should be delayed." He also mentioned that the central bank should not wait until inflation reaches 2% on a 12-month basis before cutting rates. However, considering the previous statements of most Fed officials, it is highly unlikely that the minutes will take on such a dovish tone.
It is also worth noting that on Wednesday, Fed officials will speak - Atlanta Fed President Raphael Bostic (voting member this year) and Board of Governors member Michelle Bowman. Recall that Bostic said that the Fed may consider lowering rates in the near future, but they are not in a rush. In his opinion, the first round of monetary policy easing may occur, probably, in the summer.
Thursday
On Thursday, February 22, we will learn about the PMI data of key countries in the euro bloc. According to preliminary forecasts, all indicators will remain in the contraction zone, i.e., below the 50-point mark, but will demonstrate positive dynamics. For instance, the Business Activity Index in the manufacturing sector of Germany in February is expected to reach 46.1 points, after falling to 45.5 in January. German Services PMI data is expected to rise to 48.0, after a slight increase to 47.7 in the previous month. The European Manufacturing PMI is expected to rise to 47.0 (January - 46.6), while the Services PMI is seen to reach 48.8 (48.4).
However, the U.S. Manufacturing PMI is expected to remain above the key 50-point level but show negative dynamics (January value - 50.7, February forecast - 50.1). If the index does dip into the 49-point range, the dollar will come under significant pressure.
The U.S. will also release a report on home sales. According to forecasts, the sales volume will increase by 3.0% in January. This will be the strongest result since February 2023.
But not only macroeconomic reports will influence the dynamics of EUR/USD. Fed officials Philip Jefferson, and Patrick Harker, who is the President of the Philadelphia Fed, will also speak.
Friday
On the last trading day of the week, we will learn the values of the indices from the German IFO Institute. Market players expect very modest but positive results. The IFO Business Climate Indicator is expected to grow in February to 85.5 (previous value - 85.2), and the Economic Expectations Index - to 83.8 (January value - 83.5).
In addition, on Friday, three Fed officials will speak: Lisa Cook, Christopher Waller, and Neel Kashkari.
Conclusions
The PMI data will set the tone for the EUR/USD pair, as well as by Fed officials who will comment on the latest inflation data. The minutes of the January FOMC meeting may only have a significant impact if it reflects an excessively hawkish or dovish position of the Fed members (which is highly unlikely). All other fundamental factors will play a supporting role.
You may consider long positions after the pair surpasses the resistance level of 1.0830 (the lower boundary of the Kumo cloud on the 1D timeframe). In this case, the next targets for the upward movement will be the levels of 1.0900 (the upper Bollinger Bands line on the daily chart) and 1.0940 (the upper boundary of the Kumo cloud on the same timeframe).
