EUR/USD Forecast Feb. 22-26 – Markets expect Eurozone inflation to break out

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EUR/USD showed some volatility but was unchanged over the week. There are six events on the calendar this week, including eurozone inflation. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

Eurozone industrial production declined by -1.6%, which was weaker than expected. Eurozone GDP came in at -0.6% in Q4 of 2020, pointing to stagnation in growth. German ZEW Economic Sentiment accelerated for a third straight month, rising from 61.8 to 71.2. German and Eurozone Manufacturing PMIs rose in January, with readings of 60.6 and 57.7, respectively. These numbers point to strong expansion. Services remains in contraction, as the PMIs came in at 45.9 and 44.7, respectively.

In the US, January retail sales pointed to a strong rebound in consumer spending. The headline read jumped 5.3% while core retail sales came in at 5.9%. The forecast for both releases stood at 1.1%. The FOMC minutes reiterated a dovish message from the Fed, which signaled that it has no plans to taper QE anytime soon. Services and manufacturing remain well into expansionary territory, as the January PMIs came in at 58.5 and 58.9, respectively.

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EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. German ifo Business Climate: Monday, 9:00. Business confidence slipped to 90.1 in January, down from 92.1. It is currently at a 7-month low. The forecast for February stands at 90.5.
  2. Inflation Report: Tuesday, 10:00. Inflationary pressures have been rising and Eurozone headline CPI for January is expected to show a strong gain of 0.9%, after five straight declines. The core reading is projected to jump from 0.2% to 1.4%.
  3. German GDP: Wednesday, 7:00. The eurozone’s largest economy rebounded in Q3, with a gain of 8.5%, after a decline of 9.7% beforehand. However, the estimate for Q4 is a negligible 0.1% gain.
  4. German GfK Consumer Climate: Thursday, 7:00. Consumer climate fell to -15.6 in January, its lowest level in 8 months. Another weak reading is projected for February, with an estimate of -14.0.
  5. Monetary Data: Thursday, 9:00. M3 Money Supply is projected to rise from 12.3% to 12.6% in January. Private Loans is projected to inch up to 3.2%, after posting four straight gains of 3.1%.
  6. French CPI: Friday, 8:15. Inflation in the eurozone’s second-largest economy remains at low levels. The estimate for February stands at 0.2%, unchanged from January.

EUR/USD Technical analysis

Technical lines from top to bottom:

We start with resistance at 1.2494.

1.2376 is next.

1.2225 has held in resistance since the first week in January.

1.2096 is next.

1.2002 (mentioned last week) is protecting the symbolic 1.20 line.

1.1846 is the final support line for now.

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I remain neutral on EUR/USD

The US dollar remains under pressure, and the massive US stimulus scheme will weigh on the currency. At the same time, the eurozone economy remains weak and the vaccine rollout has been sluggish.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.