The next week could be particularly interesting in the context of recent events. Market sentiment remains very positive, and it seems that any hawkish signals from both the economy and central banks are quickly forgotten. This was the case with last week's PMI data and the exceptionally hawkish comments from FOMC members. Next week, we will see several more publications that could prompt investors to reassess the current situation. In the Eurozone, CPI reports will be published, while in the US, we will get another Q1 GDP report and PCE inflation data. Therefore, it will be worth watching the US500, USDIDX, and EURUSD.
US500
US indices are reaching new highs, disregarding hawkish signals from the Federal Reserve. This week, we will get another US Q1 2024 GDP reading. A weaker reading could paradoxically trigger another bullish reaction in the markets. In such a scenario, it would confirm a slowing US economy and support the Fed in accelerating rate cuts. However, despite the expected reading of 1.6% being much lower than the 3.4% for Q4 2024, it is still growth data, and a consensus reading may not change much in the market. During the publication, it will be particularly worth watching the US500 index.
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Another significant report will be the April PCE data on Friday. This is the Fed's preferred measure of inflation, often emphasized by the central bank. Therefore, its readings may have even greater significance than the CPI in shaping the Federal Reserve's monetary policy. The current consensus expects the annual headline inflation rate to be 2.7% year-over-year and the core rate to be 2.8% year-over-year. When published, it will be worth observing the dollar index.
EURUSD
The June ECB rate cut is already priced in, and according to the ECB, further cuts will depend on upcoming data. This week, we will see CPI reports from several Eurozone countries, including Germany and France. These readings will be significant for the ECB and the curving the expectations of the next cuts, potentially in September. The publication of these reports will impact the euro, making it worth watching the EURUSD pair in this context.
