FX.co ★ EUR/USD Weekly Preview: Eurozone inflation, Core PCE Index, ISM Manufacturing Index

As November comes to a close, significant economic reports scheduled for the end of the month are on the horizon. Among them are reports on eurozone inflation, US GDP, the ISM Manufacturing Index, and the Core PCE Index. In the current circumstances, the significance of these reports cannot be overstated. The uptrend has stalled, yet sellers are unable to tip the scales in their favor. A strong impetus is needed to help determine the direction of price movement.

At the end of the upcoming week, the pair will either test the 1.1000 target or return to the area of the 8th figure with the prospect of further decline. Let's review the economic calendar for the last week of November.

Monday

On Monday, the economic calendar for EUR/USD is relatively empty, with only the speech of European Central Bank President Christine Lagarde to highlight. This event is scheduled for the second half of the day, where she will present a report to the members of the Committee on Economic and Monetary Affairs of the European Parliament. Since the theme of the report is directly related to monetary policy, the market will show a particular interest in it. It's worth noting that recently, members of the ECB have noticeably tightened their rhetoric, allowing for another interest rate hike in the foreseeable future. In her recent speech, Lagarde expressed a more restrained tone but noted that declaring victory over inflation in the eurozone is still premature, as conclusions based on the flow of short-term data are "very premature." She added that price growth could accelerate in the coming months, so the ECB needs to remain vigilant to inflation sustainability risks. If she echoes similar theses within the walls of the European Parliament, the euro may receive additional support.

In addition, on Monday, the report on the volume of home sales in the primary market in the United States will be published. According to forecasts, in October, sales volume will decrease by 4% after a 12% increase in September.

Tuesday

On November 28, EUR/USD traders will focus on the Federal Reserve officials. Lael Brainard, Christopher Waller, Michelle Bowman, and Michael Barr are scheduled to speak. All of them have voting rights, so their rhetoric could trigger increased volatility among dollar pairs. However, if they repeat the theses already voiced earlier, traders may ignore their speeches. The message that the Fed is ready to keep the rate at the current level "as long as necessary" has long been absorbed by the market, so such signals may go unnoticed. Price turbulence is possible in two cases: if Fed members start discussing the timeline for tapering the asset purchase program (this is highly unlikely) or if they allow for another interest rate hike within the current cycle (unlikely but cannot be ruled out). Messages that are opposite in nature can "rock the boat," unlike outdated signals about maintaining the status quo.

In addition, we will learn the October value of the US consumer confidence index. Over the past three months, the indicator has consistently declined, and a downward trend is also expected in October (101.0 - the worst result since July 2022).

Wednesday

On Wednesday, we will learn the second estimate of the US GDP growth in the third quarter. According to the initial estimate, the US economy grew by 4.9% during this period. According to some experts, the second estimate will differ from the initial one, and it is expected to increase to 5.0%. If the indicator meets the forecast level (not to mention the "green zone"), the dollar will receive support, considering Fed Chair Jerome Powell's recent statements. It is worth recalling that he recently expressed concern that rapid economic growth in the US could fuel inflation and force the Fed to take countermeasures.

Also on Wednesday, data on inflation in Germany will be published. According to forecasts, the Consumer Price Index will decrease to 3.5% YoY (in this case, the indicator will show a downward trend for the fifth consecutive month), and the harmonized CPI will decrease to 2.7% YoY (also the fifth consecutive month of decline). It is worth noting that German data often correlates with the overall European data, so this release may have a significant impact on the EUR/USD pair, especially if the actual results do not match the forecast values.

Thursday

The last day of November will be the most eventful day of the week. During the European session, the eurozone inflation report will be published. According to preliminary forecasts, the CPI in October will decrease to 2.7% YoY (the lowest value since August 2021), and the core index will decrease to 3.9% YoY (the lowest value since July 2022). If, contrary to expectations, inflation starts to accelerate again, the euro will receive strong support amid the tightening rhetoric of some ECB representatives. Several ECB members have already stated that the central bank may need to resort to additional monetary tightening. The "green color" of European inflation will strengthen traders' hawkish sentiments regarding the ECB's future course of actions.

In the US, an inflation report will also be published – the core Personal Consumption Expenditures (PCE) Price Index. This is a crucial inflation indicator closely monitored by Federal Reserve members. According to preliminary forecasts, the core PCE index on a year-over-year basis will decrease to 3.5% (the lowest value since September 2021). It is worth noting that after rising to 4.3% in July, this indicator sharply declined in August to 3.8%, and then in September to 3.7%. According to most experts, in October, the indicator will again decrease, this time to 3.5%. This fact will exert moderate pressure on the US currency. If the indicator turns out to be in the "red zone," the greenback will be in a tough spot, giving buyers another reason to rally.

Friday

The most important release on Friday is the Manufacturing Purchasing Managers' Index (PMI) (ISM). The Manufacturing PMI has been in the contraction zone (below the 50-point mark) since November 2022. In November 2023, the indicator is also expected to remain below this key level – according to forecasts, the Manufacturing PMI will reach 47.7 this month.

Also on Friday, Powell is expected to speak. He will participate in a "fireside chat" with the president of Spelman College. Typically, in such events, the Fed Chair provides only "reflections" without delving into specifics. However, it is important to remember that this speech will take place the day after the release of the core PCE index. Therefore, Powell may comment on this report and trigger significant volatility among dollar pairs.

Conclusions

Ahead is an eventful week. The Fed officials and inflation reports in Europe and the United State will set the tone for trading . The bulls need to consolidate above the 1.0950 level (upper Bollinger Bands line on the four-hour chart) to pave the way to the next, more significant price barrier at 1.1020 (upper Bollinger Bands line on the daily chart). The bears' objective is to settle below 1.0870 (lower Bollinger Bands line, coinciding with the upper band of the Kumo cloud on H4), thereby extinguishing the bullish momentum. Last week, both buyers and sellers made attempts, but in vain: the pair closed trading at the 1.0940 level, below 1.0950 but above the 1.08 figure. Whether opposing sides can make a price surge next week remains to be seen.