FX.co ★ EUR/USD Weekly Preview: ECB meeting, US GDP, and Core PCE Index

The EUR/USD pair concluded the trading week at 1.0594, right at the threshold of the 1.06 level. The bulls managed to reclaim nearly all the ground lost during the prior week, but they still remain within the 1.05-1.06 range. Traders have been going in circles since the beginning of October, and the pair has been stuck within the 1.05-1.06 range, which shows that traders are being indecisive. The upcoming week's events might break this tight range. The price could either drop back to the support level at 1.0450 (the lower Bollinger Bands line on the daily chart) or climb above the 1.0630 target (the upper Bollinger Bands line on the same timeframe).

Monday

Monday, October 23, sees a sparse economic calendar for EUR/USD. In Germany, the Bundesbank will publish its monthly report, although this seldom influences the markets. The Eurozone Consumer Confidence Indicator could fuel some volatility. According to forecasts, this indicator should come in at -18.3 (the lowest level since March 2023).

Tuesday

On October 24, the PMIs for key European countries will be published, with a particular focus on the German data. It's worth noting that in September, Germany's Manufacturing PMI stood at 39 points. On one hand, this is a very low value, but on the other hand, the indicator has shown an upward trend for the second consecutive month. This indicator is expected to reach 40.5 points in October, continuing its "upward path," so to speak. The German Services PMI is expected to remain above the key 50-point mark (at 50.1 points). However, the overall European PMIs (in the manufacturing and services sectors) are expected to stay below this key target (43.6 and 48.7, respectively). It's worth noting that the aforementioned reports may influence EUR/USD only if they significantly deviate from the consensus estimates.

On the same day, the United States will release the Manufacturing PMI. According to consensus estimates, the index is expected to stand at 49.5. The dollar will only receive support if this index unexpectedly crosses the 50-point mark, contrary to expectations. On the other hand, the Services PMI should decrease to 49.9 in October from its current value of 50.1. If the index remains at the September level (i.e., above the 50-point line), this would be a good thing for the dollar.

Wednesday

On Wednesday's European session, we can monitor the IFO indices. According to forecasts, the October results are expected to closely match those of September. For instance, the business climate indicator for Germany is expected to be at 85.9 (compared to 85.7 in September). The IFO current assessment indicator is projected to be at 88.5 (compared to 88.7 in September). In this case, the market will likely ignore this release.

Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde are expected to speak during the US session. However, their speeches will be ceremonial, so they will not have any impact on the pair (the head of the ECB will give an opening speech at the official dinner of the Bank of Greece, and the head of the Fed will give an opening speech at a lecture on social sciences).

Thursday

We expect to see increased volatility in the EUR/USD pair on Thursday.

We will learn the outcomes of the ECB's October meeting. According to the majority of experts, the ECB will maintain all parameters of its monetary policy unchanged, following the unexpected decision to raise interest rates in September. After the previous meeting, the central bank indicated that it was prepared to keep rates at the current level for an extended period but was not ready for further tightening of monetary policy. The central bank left the door open for another rate hike, but only if inflation accelerates again. However, the latest data showed a slowdown in inflation. For instance, the Consumer Price Index (CPI) in the eurozone came in at 4.3%, below the forecast of 4.5% (marking the slowest pace of growth since November 2021). The core CPI also entered the "red zone," standing at 4.5% (compared to the forecast of 4.8%). For the first time in many months, both the overall and core indices have entered the "red zone," indicating synchronous deceleration. The September figures effectively put an end to the discussion about whether the central bank would raise interest rates in October. The answer is clear: no, it will not.

During the US session, we will receive preliminary data on the growth of the US economy for the third quarter. According to general forecasts, the GDP is expected to increase by 4.3%. The last time the figure exceeded the 4% mark was in the fourth quarter of 2021. In other words, experts are predicting a fairly strong result, which will provide significant support to the dollar, even if it meets the forecasted level (not to mention surpassing it). To provide some context, in the first quarter of 2023, the US economy grew by 2.0%, and in the second quarter, it grew by 2.1%.

Friday

However, Friday's reports could put pressure on the greenback. On this day, traders may look to the core Personal Consumption Expenditures Price Index (PCE) – a crucial inflation indicator closely watched by Fed officials. According to preliminary forecasts, the core PCE price index for September is expected to decrease to 3.7% on an annual basis (the lowest reading since September 2021). If this reading comes in at or below the forecasted level, the dollar will face significant pressure, especially in light of recent statements by Powell. It's worth noting that Powell has cast doubt on the wisdom of further monetary policy tightening, emphasizing the side effects of aggressive monetary policies. He has also pointed to the rise in Treasury yields as an argument for a more cautious approach. Following his statements, the likelihood of a rate hike in November dropped to zero. If the core PCE index enters the "red zone," the prospects for a December rate hike will also be in doubt (at the moment, the chances of monetary policy tightening in December are estimated at 20%).

In summary, the key macroeconomic events will unfold on Thursday and Friday. The outcomes of the latest ECB meeting, US Q3 GDP data, and September's Core PCE Index will set the tone for EUR/USD trading, determining the pair's direction. PMIs, IFO, and other reports are expected to have limited impact on the EUR/USD pair.