EUR/USD Forecast March 22-26 – Fed Stays Dovish, But Dollar Gains Ground


Bank Note, Euro, Bills, Paper Money

EUR/USD posted slight losses last week. There are five events on the calendar this week, including PMIs. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

German ZEW Economic Sentiment improved for a fourth successive month, rising from 71.2 to 76.6. The eurozone reading showed a similar trend. Eurozone headline inflation came in at 1.1% and the core reading at 0.9%, confirming the initial estimate. Inflation has been moving higher, but ECB President Christine Lagarde said that the bank would not respond to inflation “blips”.

In the US, retail sales disappointed in February. The headline reading fell by 3.0% and the core reading came in at -2.7%, after both releases showed gains of over 5% a month earlier. The FOMC policy meeting was generally dovish, with policymakers reiterating that the Fed had no plans to raise interest rates before 2023. Still, the growth forecast was upbeat, as the US recovery shows signs of gathering steam. The Philly Fed Manufacturing Index soared from 23.1 to 51.8, and is now at its highest level in some 48 years.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. Current Account: Monday, 9:00. The current account surplus jumped to EUR 36.7 billion in December, its highest level since January 2018. The forecast for January stands at 34.5 billion.
  2. PMIs: Wednesday, 8:15 in France, 8:30 in Germany, and 9:00 for the whole eurozone. The March data is expected to show little change from the February numbers. Manufacturing continues to show strong expansion, led by Germany, which impressed with a reading of 60.8. Services has been lagging behind, with Germany, the eurozone and France registering readings below the 50-level, which separates expansion from contraction.
  3. German GfK Consumer Climate: Thursday, 7:00. Consumer confidence remains mired in negative territory, as consumers are pessimistic about economic conditions. The index came in at -15 in January and no change is expected in February.
  4. Monetary Data: Thursday, 9:00. M3 Money Supply rose to 12.5% in January, up from 12.3%. No change is expected in the upcoming release. Private Loans edged lower to 3.0%, down from 3.1%. An upturn is expected in February, with an estimate of 3.2%.
  5. German ifo Business Climate: Friday, 10:00. Business confidence improved in the second half of 2020 and remains strong early in 2021. The index rose from 90.1 to 92.4 in February and is projected to reach 93.1 in March.
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