EURUSD on brink of major breakout? :: InvestMacro

• EURUSD braces for heavy event week

• Keep eye on top-tier EU + US data

• Speeches from central bank officials also in focus

• Major breakout could be on horizon

• First points of interest at 1.10 and 1.09

The EURUSD could be pumped with fresh life next week due to key economic data, speeches from central bank officials and threat of a partial US government shutdown.

Monday, 15th January

• CNH: China medium-term lending facility rate
• CAD: Canada existing home sales
• EUR: Eurozone industrial production, Germany 2023 GDP report
• World Economic Forum in Davos
• US markets closed – Martin Luther King Jr. holiday

Tuesday, 16th January

• EUR: Germany CPI, ZEW survey expectations
• GBP: UK jobless claims, unemployment
• CAD: Canada CPI, housing starts
• USD: US Empire Manufacturing, Fed Governor Christopher Waller speech
• WSt30_m: Goldman Sachs earnings

Wednesday, 17th January

• CNH: China GDP, retail sales and industrial production
• EUR: Eurozone CPI, ECB President Christine Lagarde speech – Davos
• GBP: UK CPI
• USD: US retail sales, industrial production, Fed Beige book, New York Fed President John Williams speech

Thursday, 18th January

• AUD: Australia unemployment
• NZD: New Zealand food prices
• EUR: ECB minutes, ECB President Christine Lagarde speech – Davos
• JPY: Japan core machine orders, industrial production
• USD: US housing starts, initial jobless claims, Atlanta Fed President Raphael Bostic speech

Friday, 19th January

• CAD: Canada retail sales
• JPY: Japan CPI, tertiary index
• EUR: ECB President Christine Lagarde speech – Davos
• USD: University of Michigan consumer sentiment, San Francisco Fed President Mary Daly speech
• Deadline for avoiding partial US government shutdown

It has felt like the same old story for the EURUSD since the start of the new year with prices swinging within a range on the daily charts.

Given the exceptional list of major risk events over the coming week, a significant move could be around the corner…

Here are 4 factors to keep an eye on:

1. EU data dump + ECB President speech

It’s a week packed with crucial European economic reports that may influence expectations around when the European Central Bank (ECB) will cut interest rates this year.

Data from Germany, Europe’s largest economy will be under the spotlight with much focus on the 2023 growth figures, CPI and ZEW survey expectations.  This will be complemented by the ECB meeting minutes for December’s meeting which will be scrutinized for fresh clues on the ECB’s next move. But the main course will be Christine Lagarde’s remarks during the World Economic Forum.

Traders are currently pricing in a 40% probability of a 25-basis point ECB rate cut by March 2024, with a move fully priced in for April.

• The euro may weaken if overall economic data disappoints and Lagarde strikes a dovish tone in Davos – sending the EURUSD lower as a result.
• Should overall economic data beat forecasts and Lagarde pushes back against rate cut bets, the euro could rise – elevating the EURUSD.

2. Key US data + Fed speeches

A barrage of top-tier US economic data has the potential to rock the dollar, impacting the EURUSD as a result.

Investors will be paying close attention to the latest retail sales figures, manufacturing data and consumer sentiment to gauge the health of the US economy. Speeches from a host of Fed officials will be added to the mix, coupled with the beige book which could impact speculation around when US rates will be cut this year.

The latest hotter than expected US inflation report has slightly dented expectations around when the Fed will cut rates, but traders still see a 76% probability of a cut in March.

• Stronger-than-expected data and hawkish remarks by Fed officials may boost the dollar as rate cut bets decline. This may pull the EURUSD lower.
• Should overall US economic data disappoint, and Fed officials sound dovish, the dollar may weaken – pushing the EURUSD higher.

3. Possible partial government shutdown

The United States is facing a partial government shutdown deadline set to expire on January 19th.

Sentiment towards the US economy could take a hit, especially if a full shutdown happens beyond the February 2nd deadline. Given how this development is likely to influence the USD, its impact will most likely be seen on the EURUSD.

4. Technical forces

The EURUSD is respecting a bullish channel on the daily timeframe with a “golden cross” technical pattern in play. However, prices remain trapped within a 100-pip range with minor support at 1.1000 and resistance at 1.0900.

• A strong breakout and daily close above 1.1000 could trigger a move towards the monthly resistance around 1.1100 and 1.1230 – a level not seen since mid-July 2023.
• Should prices slip back below 1.0900, this could open a path back toward the 200-day SMA at 1.0840 and 1.0756.