The next week promises to be eventful for financial markets, with central bank meetings and key economic data releases shaping investor sentiment. Here's a breakdown of the key events to watch:
Central bank pronouncements will be the main event in the coming days. The Reserve Bank of Australia, Bank of Japan, US Federal Reserve, Swiss National Bank, and Bank of England are all scheduled to meet and reveal their latest monetary policy decisions. These meetings will provide crucial insights into their views on the global economic outlook and their plans for interest rates.
The Bank of Japan meeting is particularly interesting, with a 40% chance of a surprise 10 basis point rate hike. While all meetings are important, others may offer clues about future policy adjustments, impacting investor decisions.
For traders focusing on euro-based currencies like EUR/USD and EUR/GBP, these central bank announcements are especially important. You can find a detailed schedule of all upcoming central bank meetings on the DailyFX economic calendar.
Economic Data Points to Watch
Beyond central bank pronouncements, the economic calendar is packed with key data points that will influence market sentiment. These include reports on the ZEW economic sentiment index, HCOB purchasing managers' indexes (PMIs), and the German IFO business climate index.
A comprehensive economic calendar, like the real-time DailyFX Economic Calendar ([link to DailyFX Economic Calendar]), is essential for traders navigating the complexities of the financial markets. This calendar provides a detailed account of all significant economic data and events.
Euro Under Pressure: ECB and Fed Policy Divergence
The current market environment is pressuring the euro down. The EUR/USD exchange rate is hovering near a one-week low of around 1.0885, reflecting the strength of the US dollar.
The European Central Bank (ECB) is widely expected to be the first major central bank to cut interest rates, with the June meeting a strong possibility. This divergence in monetary policy between the US Federal Reserve, which is raising rates, and the ECB, which is considering cuts, is weakening the euro.
The potential for a further decline in EUR/USD could be amplified if market expectations of future Fed rate hikes remain unchanged. The EUR/USD pair's recent high of 1.0981 seems out of reach for now, with the Fed's hawkish stance likely preventing a return to that level in the near future.
On the technical side, some support for EUR/USD comes from the alignment of three moving averages with the key 23.6% Fibonacci retracement level. This creates a support zone between 1.0840 and 1.0864.
If the EUR/USD pair breaks below this critical support zone, it could trigger a sharper decline towards the psychologically important level of 1.0787.
EUR/GBP Faces Downward Trend
The EUR/GBP pair is also facing challenges. It's currently trading near the lower boundary of a prolonged downtrend and below all three simple moving averages. This technical picture suggests the bearish trend for EUR/GBP may continue.
A potential break below the crucial support level of 0.8493 could intensify this bearish sentiment, potentially pushing the EUR/GBP pair to revisit its previous swing low of 0.8340 set in August 2022.
For a reversal of fortune, the EUR/GBP pair would need to overcome significant resistance at 0.8550 in the short term.
The coming week promises to be a data-driven and policy-heavy one for financial markets. Central bank meetings, particularly those of the Bank of Japan and the ECB, will be closely watched for clues about future interest rate decisions.
Additionally, key economic data releases will provide insights into global economic health. The euro is expected to remain under pressure due to the diverging monetary policy stances of the US Federal Reserve and the European Central Bank.
Traders focusing on EUR/USD and EUR/GBP should closely monitor these developments and the technical indicators mentioned above.