Article by: ETO Markets
Traders are keenly watching for signals on Federal Reserve rate cuts amid economic data releases. The CME’s FedWatch Tool indicates a slightly better-than-even chance that the Fed will keep rates steady in September, but traders are hopeful for signs supporting rate cuts.
Upcoming Economic Data:
Thursday:
- Eurozone: Pan-European Consumer Confidence for May is expected to remain at -14.3. The Economic Sentiment Indicator is forecast to improve slightly to 96.2 from 95.6.
- US: Q1 GDP is anticipated to show an annualized growth of 1.3%, down from the previous 1.6%. This data will be crucial as investors seek signs of economic softening that could prompt the Fed to ease rates.
Friday:
- Germany: Retail Sales for May are expected to decline by 0.1% MoM.
- Eurozone: Core Harmonized Index of Consumer Prices (HICP) for the year ending in May is expected to rise slightly to 2.8% from 2.7%.
- US: Core Personal Consumption Expenditures (PCE) Price Index for April is forecast to remain steady at 0.3% MoM.
EUR/USD's movement this week is heavily influenced by upcoming European and US economic data. Traders should watch for shifts in sentiment regarding Federal Reserve rate cuts, as these will impact market dynamics significantly.
The US Dollar (USD) strengthened due to high US Treasury yields. Hawkish remarks from Minneapolis Fed President Neel Kashkari have intensified concerns over possible US rate hikes, maintaining the significant yield gap between the US and Japan. This scenario continues to promote JPY carry trades, where investors borrow low-interest Yen to invest in higher-yielding Dollar assets.
Traders are now betting on the BoJ possibly raising interest rates. Attention is focused on Tokyo’s inflation data set to be released on Friday, seen as a crucial indicator for nationwide price trends. Also, traders are eyeing the US Gross Domestic Product (GDP) data for Q1, due on Thursday, and the Core Personal Consumption Expenditures (PCE) Price Index data on Friday. These reports are expected to provide insights into the Federal Reserve's future interest rate decisions.
Key Takeaways for Forex Traders:
1. Monitor BoJ Actions: Keep an eye on the BoJ’s monetary policy moves and Tokyo’s upcoming inflation data.
2. US Economic Data: Pay attention to US GDP and PCE reports for clues on the Fed’s next steps.
3. Carry Trade Opportunities: Consider the yield gap between the US and Japan when planning carry trades.
