EUR/USD. The most important week of March

There's a full plate of fundamental events slated for the upcoming week. The US Federal Reserve will be the main agenda, as it will announce the results of its March meeting on Wednesday. But this is not the only significant event of the week. We can also look forward to Fed Chair Jerome Powell's speech (separate from the post-meeting press conference), ZEW, PMI, IFO indices, real estate and construction reports in the US, and so on. There is no doubt that volatility will increase in the upcoming days. Let's take a look at the economic calendar for the most important week of March.

A block of macroeconomic reports will be published in China. Among them is the investment volume in the country's fixed assets. This indicator has been showing a downward trend for several months. However, the volume increased by 3.0% in December (after November's value of 2.9%), and a positive trend is also expected in January (3.2%). However, industrial production in China is expected to increase by 5.8% in February, which is lower than the results of January (6.8%) and December (6.6%). If these reports come out in the "red," the dollar will receive indirect support amid growing risk aversion sentiment.

During the European session on Monday, the final report on the Eurozone Consumer Price Index (CPI) for February will be published. According to forecasts, the final estimate will match the preliminary one (overall CPI - 2.6%, core CPI - 3.1%).

On Tuesday, March 19, we will learn the values of the ZEW Institute indices. In particular, the Business Sentiment Index in Germany has been showing positive results for the 7th consecutive month (and has been above zero since November), reaching 19.9 points in February. According to forecasts, it will maintain positive results in March: the indicator is expected to reach 20.6 points. The European Business Sentiment Index is also expected to increase - up to 25.4 points (the highest value of the index since February 2023).

During the US session, reports on the US construction sector will be released. The volume of building permits issued in February is expected to decrease again - by 1.9% y/y after a decrease of 1.5% in January. However, the volume of housing starts is expected to increase - by 7.0% on an annual basis.

However, considering that these reports are of secondary importance and will be published ahead of the key event of the week (the announcement of the results of the Fed's March meeting), they will not have a significant impact on the pair.

The market will focus on the FOMC meeting. The formal outcomes of the Fed's March meeting have been predetermined and long priced in: according to the CME FedWatch Tool, the probability of keeping the parameters of monetary policy unchanged stands at 98%. Therefore, the market will ignore the actual decision.

Traders are more interested in other prospects. And not even in the context of the next meeting in May, but in the context of the summer meetings. Roughly speaking, traders will try to find an answer to one single question: June/July or September? The latest inflation reports suggest that the Fed will keep the wait-and-see stance. According to the latest data, only the core CPI decreased (although the pace of decline slowed), while overall inflation, as well as the Producer Price Index (PPI), suddenly accelerated. And more importantly, the CPI and PPI were released during the Fed's "blackout period." This means that we will learn the initial estimates of the reports directly following the March meeting.

We can assume that the Fed will take a moderately hawkish position and allow for a longer time frame before the first round of interest rate cuts. Take note that after the release of the inflation reports, the probability of a rate cut in June decreased from 60% to 50%. If Fed members express concern about accelerated inflation in the accompanying statement, or if Powell emphasizes this at the press conference, then the prospects for June will fall to 40-30%, and the dollar will receive significant support, as in this case, the date of the potential rate cut will shift not to July, but to September.

In the context of the EUR/USD pair, it is also worth noting that recently some ECB members have softened their rhetoric (in particular, Yannis Stournaras and Francois Villeroy de Galhau) – they called for not delaying interest rate cuts and making the appropriate decision "before the summer holidays," that is, in June or even April. If against the backdrop of these messages, the Fed casts doubt on a rate cut in June, EUR/USD bears will significantly strengthen their positions.

During the European session, key European countries will release PMI indices. If we summarize the forecasts of most experts, the situation emerges as follows: PMI data in the manufacturing and services sectors will remain below the 50-point mark, indicating contraction, but will demonstrate positive dynamics. For instance, the Manufacturing PMI of Germany is expected to reach 43.1 points in March after a February decline to 42.5. And so on. The "red color" of the reports will exert additional pressure on the euro.

During the US session, data on existing home sales in the US will be released. According to forecasts, sales volume will immediately decrease by 2.5% (the lowest value of the indicator since October 2023).

In addition, Fed Board member Michael Barr will speak, who may comment on the outcomes of the March meeting. He is a centrist who takes a cautious position. In one of his recent speeches, he said that he needs to see a sustained decrease in inflation before he starts advocating for rate cuts. In the context of the upcoming speech, his assessment of the outcomes of the Fed's March meeting would be quite interesting.

Germany will release reports from the IFO Institute. Overall, positive dynamics are expected. In particular, the business climate indicator should reach 85.9 points (after rising to 85.5 in February). This report should be considered in conjunction with the ZEW and PMI releases, especially if they "resonate" (that is, they come out either worse or better than expected).

In addition, Powell will speak on Friday. He will deliver a welcome address at an economic conference in Washington. The ceremonial format of the speech does not imply any deep dive into specifics. However, Powell may still provide comments on the outcomes of the Fed meeting.

The upcoming week can be divided into "before" and "after" before March 20, when the Fed announces the outcomes of the March FOMC meeting, and after this event.

In the first half of the week, EUR/USD traders will exercise caution as the Fed may present a hawkish surprise (or conversely, a dovish one if it confirms rate cut prospects for June). In the second half of the week, market participants will digest the outcomes of the March meeting. All other fundamental events will be of secondary importance (at least for EUR/USD traders).

The focus will be on the Fed meeting.