50 or 25? Throughout August and up to the Federal Reserve's September meeting, this question will be on the agenda among traders of dollar pairs, including EUR/USD. Following "Black Monday," it became clear that the Fed will undoubtedly begin to ease monetary policy in early autumn, that is, at the September meeting. The only question is whether the interest rate will be lowered by 25 basis points or 50.
Let me remind you that during the height of "Black Monday," traders were confident that the central bank would implement a 50-basis-point scenario in September. However, emotions subsided, and market expectations changed: the chances of a 25-basis-point cut at the September meeting stands at 51.5%, while the probability of a 50-basis-point cut is 48.5%, according to the CME FedWatch tool. The scales are frozen in balance, but it is a precarious position. Key releases in the upcoming week could disrupt this balance, strengthening or weakening the US dollar. The focus is on the inflation reports.
On Monday, the economic calendar for the EUR/USD pair is almost empty, so all the "action" will begin on Tuesday when the first inflation indicator, the Producer Price Index (PPI), will be released. The PPI has shown an upward trend for the fifth consecutive month. In January of this year, the figure was at 1.0%, but starting from February, it began to pick up pace, rising to 2.6% in June, compared to a forecast of 2.3% (the strongest growth rate since March 2023). The core PPI demonstrated a similar trend. On an annual basis, the figure has been rising steadily for six months, climbing from 1.8% to the June level of 3.0% YoY (the forecast was 2.5%).
Preliminary forecasts suggest that PPI figures will remain at June levels in July. The overall PPI Index is expected to be at 2.6% YoY, and the core PPI at 3.0% YoY. If, contrary to forecasts, the indexes begin to slow down (after such confident multi-month growth), the dollar could face significant pressure.
The next day, Tuesday, August 13, we will learn about July's Consumer Price Index (CPI). As is known, this is one of the most important inflation indicators, and it has recently started to slow down. Last month, the overall CPI fell more than expected: with a forecast decline to 3.1%, it came in at 3.0% YoY (the lowest growth rate since November 2023). The core CPI, excluding food and energy prices, also entered the "red," dropping to 3.3%, while most experts had forecasted stagnation at 3.4%.
According to forecasts, the overall CPI for July is expected to remain at the same level as the previous month, at 3.0% in annual terms. However, the core index should slow down to 3.2%, the lowest since April 2021.
On Thursday, August 15, the US will release the import price index. This is a secondary inflation indicator, but it could serve as an early signal of changes in inflation trends. Over the past six months, there has been an upward trend, and July could become the seventh month in this series. It is forecasted that the index will rise to 1.8% in annual terms. Once again, an unexpected slowdown in this indicator could trigger increased volatility (against the dollar), given the previous consistent rise.
Finally, on Friday, we will receive the University of Michigan's consumer sentiment index. This is a crucial leading indicator of future spending. Despite its decline over the past four months, a slight acceleration is expected in August (66.7 after falling to 66.4). For EUR/USD buyers, it is crucial that this indicator continues its downward trajectory.
The upcoming CPI and PPI reports will be pivotal in shaping trading in the EUR/USD pair. These reports could either provide a lifeline to the greenback or act as an anchor, potentially pulling the dollar index to multi-month lows. In the context of EUR/USD, this means the pair could either return to the 1.0800-1.0850 range or approach the boundaries of the 10th figure, with the possibility of testing the 1.1000 target.
Of course, the upcoming week includes more than just inflation reports. Traders of dollar pairs will also closely monitor other macroeconomic indicators that will help provide a "snapshot" of the US economy. Following the disappointing July Non-Farms, there is talk of an impending recession, so every macroeconomic data point from the US will be viewed through the lens of these concerns.
Several key reports should be highlighted. For example, data on retail sales volume will be released on Thursday. Total retail sales are expected to increase by 0.4% (after no growth in June), while sales excluding automobiles are expected to rise by 0.1% (after a 0.4% increase).
The Empire Manufacturing Index (New York Fed region) and the Philadelphia Fed Manufacturing Index will be published on the same day. Both indicators are expected to show a downward trend. In addition, data on industrial production volume will be released on Thursday. Forecasts suggest a decrease of 0.2% following a 0.6% increase in June.
On Friday, we will learn about the volume of building permits issued in the US (a decrease of 0.4% is expected) and the number of new housing starts (forecasted -2.0%).
Key speakers this week include Raphael Bostic, President of the Atlanta Fed (Tuesday), Patrick Harker, President of the Philadelphia Fed (Thursday), and Austan Goolsbee, President of the Chicago Fed (Friday).
From a technical perspective, the EUR/USD pair on the daily chart is situated between the middle and upper lines of the Bollinger Bands indicator and above all lines of the Ichimoku indicator, which has generated a bullish Parade of Lines signal. The pair retains its potential to rise, with the nearest bullish target at 1.0970, which corresponds to the upper line of the Bollinger Bands on the daily time frame.
