Is the euro ready for a deeper correction?

Looking ahead

The week ahead looks sure to keep volatility from settling much lower. We have a mid-week testimony from newly minted Fed chair Powell as the main event, with a long question-and-answer session before Congress sure to provide the market with something to chew on. 

Note: the report is supposedly to be delivered today at 16:00 GMT to Congress but I do not recall this report ever being released to the public so long before the Fed chair's actual appearance before Congress; normally it is released in full just before the Fed chair delivers it. 

We also have a look at the Eurozone’s flash February CPI data on Wednesday and then the US January PCE inflation data on Thursday.

The G-10 rundown

USD – the dollar looks firm here, especially versus the euro and the struggling commodity dollars, though it has not yet administered any knockout blows. USDCAD, however, is over the top of key local resistance as the first pair to fully neutralise USD weakness. Fed-linked event risks and any new surge in risk aversion are likely to provide the impetus for fresh volatility.

EUR – as we discuss above, a combination of declining fundamental momentum factors point to the risk of near-term downside until proven otherwise.

JPY – recent strength not easy to connect with a narrative, feels like the market is reassessing the JPY assumptions and the currency could get a boost on any low inflation reports over the next week. Didn’t hurt the JPY to see a modest beat of CPI expectations overnight (January core inflation ex-food and energy were a stout 0.4% and thus a 17-month high).

GBP – sterling maintaining the recent rally versus a struggling euro and could be ready for more if the fortunes of the latter continue to decline. The UK GDP report Thursday was nothing to celebrate, however, with a small miss and UK economy growing at about half of the rate of Germany at the moment.

CHF – locally weak euro seeing EURCHF pushing back lower – 200-day moving average and March 4 Italian election/German SPD vote are perhaps the keys here for whether CHF is set for a larger consolidation higher versus the euro.

AUD – the AUDUSD bounce yesterday was a modest affair and we continue to eye the 0.7750 area (the 200-day moving average, with the 100-day moving average coming in slightly above near 0.7775-80) for the risk of a bigger breakdown. It feels like AUD would be particularly vulnerable to any new risk aversion wave.

CAD – USDCAD has been the first USD pairs to more or less fully neutralise the USD weakness after yesterday’s ugly Canadian retail sales report, but the pesky 200-day moving average hasn’t fully been taken out and we have Canada’s January CPI to contend with today.

NZD – strong retail sales overnight offer no fresh boost for the kiwi and AUDNZD is looking at possibly rejecting this latest surge lower below 1.0700... stay tuned. There’s further wood to chop to get NZDUSD bears on the prowl, but another leg lower below 0.7250 would quickly put the pivot of the recent lows and 200-day moving average around 0.7175 in the crosshairs.

SEK – Riksbank minutes today as EURSEK interacts with the key cycle resistance at 10.00.

NOK – EURNOK has gone fairly quiet, but we have a more clearly etched local downside pivot now just below 9.64.

Upcoming Economic Calendar Highlights (all times GMT)

   • 0830 – Sweden Riksbank Minutes 
   • 1000 – Eurozone Jan. Final CPI 
   • 1200 – UK BoE’s Ramsden to Speak 
   • 1330 – Canada Jan. CPI 
   • 1400 – Mexico Q4 GDP 
   • 1515 – US Fed’s Dudley and Rosengren to Speak on Fed Balance Sheet 
   • 1600 – US Fed Releases February 2018 Monetary Policy Report to Congress 
   • 2040 – US Fed’s Williams (FOMC Voter) to speak on US Economic Outlook