Week ahead fundamental outlook

 

US economy 

Several US macroeconomic statistics released this week underlined the strength of the US economy, and as a result, the market is pricing in high rates for an extended period. In keeping with our recommendation for a higher USD, the US curve inversion widened, and EUR/USD dropped to below the 1.07 mark. The US CPI figures for January showed enduring underlying price pressures. Both the headline and core CPI increased by 0.5% monthly. Core Services inflation excluding healthcare and shelter increased to 0.65% m/m (from 0.35%) but Core Services inflation as a whole stayed stable at 0.6% m/m. Nevertheless, US January retail sales exceeded expectations, with core sales (excluding sales at petrol stations and motor vehicles) increasing by 2.6% m/m. It looks like the high momentum persisted in February, additionally, the Empire Manufacturing Index from the NY Fed and the NAHB housing market index also provided positive surprises.

In the medium term, we still expect the USD to be stronger than other currencies. 

Eurozone: Recovery in sentiment data

The eurozone will release a ton of sentiment data the next week, which will provide insight into how the economy is doing in February. Both consumer confidence and PMI have recently shown some signs of improvement, and both indicators are anticipated to keep improving at modest rates. This can be expected given that the economy has generally stagnated, as it did in the fourth quarter.