Errante’s The Week Ahead: 24th – 28th February 2025

Highlights of the Week:

Eurozone Inflation Data: Key CPI figures will shape expectations for ECB policy adjustments.

U.S. Core PCE Price Index: The Fed’s preferred inflation gauge, crucial for rate outlook.

Australian and Canadian Data Releases: AUD CPI and CAD GDP will guide RBA and BOC expectations.

What Now?

This week marks a crucial moment for global markets, with major inflation and growth data shaping expectations ahead of the upcoming G20 Finance Ministers and Central Bank Governors Meeting next week. With central banks navigating diverging inflation trajectories and growth challenges, policymakers will likely discuss strategies for global economic stability, financial market resilience, and inflation-targeting frameworks.

Eurozone: ECB’s Inflation Challenge & Growth Concerns

The Eurozone CPI release will provide fresh insights into the bloc’s inflation trajectory. Germany, the region’s largest economy, continues to face growth headwinds, and any downward surprise in inflation could increase speculation of a rate cut by the European Central Bank (ECB) sooner than expected. However, persistently high inflation might reinforce the ECB’s cautious stance. Market volatility is expected in the euro, particularly against the dollar and the pound.

United States: Sticky Inflation & The Fed’s Dilemma

The Core PCE Price Index remains the Federal Reserve’s preferred inflation gauge, and the latest data suggests inflation is proving stubborn. As shown in the chart, monthly core PCE inflation has fluctuated, but recent prints indicate persistent price pressures. The actual data (0.3%) exceeded forecasts (0.2%), signaling that inflation risks remain elevated. This could push back expectations of the Fed’s first rate cut, leading to a stronger U.S. dollar as traders reassess rate hike probabilities.

Australia: CPI & RBA Policy Outlook

Australian CPI y/y figures will be a critical driver of RBA expectations. The chart indicates a steady decline from peak inflation levels but remains above the RBA’s target range. The latest inflation print (2.7%) exceeded the forecast (2.5%), reinforcing expectations that the central bank will maintain a cautious, data-dependent approach. Should inflation surprise to the upside, the Australian dollar may strengthen as markets price in a higher-for-longer rate environment.

Canada: GDP Weakness & Rate Cut Speculation

Canada’s GDP m/m data (-0.2%) signals economic contraction, raising concerns about a slowing economy. The GDP chart highlights increasing volatility, with declining economic momentum suggesting that the Bank of Canada (BoC) could lean toward policy easing. If growth continues to falter, expectations of a BoC rate cut could weaken the Canadian dollar, especially against the U.S. dollar and euro.

Upcoming Data and Events:

All times are in GMT+2.

Monday, February 24, 2025:

11:00 AM – EUR – German Ifo Business Climate: A measure of economic sentiment in Germany.

12:00 PM – EUR – Final Core CPI y/y: Key inflation data for the Eurozone.

12:00 PM – EUR – Final CPI y/y: Headline inflation data affecting ECB policy expectations.

Tuesday, February 25, 2025:

4:00 PM – USD – S&P/CS Composite-20 HPI y/y: U.S. house price index.

5:00 PM – USD – CB Consumer Confidence: Sentiment indicator for U.S. consumers.

5:00 PM – USD – Richmond Manufacturing Index: A measure of regional economic activity.

Wednesday, February 26, 2025:

2:30 AM – AUD – CPI y/y: Key inflation data influencing RBA’s policy outlook.

5:00 PM – USD – New Home Sales: A measure of U.S. housing market strength.

5:30 PM – USD – Crude Oil Inventories: Weekly oil supply data affecting energy markets.

Thursday, February 27, 2025:

10:00 AM – CHF – GDP q/q: Economic growth data for Switzerland.

10:00 AM – EUR – Spanish Flash CPI y/y: Inflation data impacting ECB decisions.

3:30 PM – USD – Preliminary GDP q/q: U.S. economic growth estimate.

3:30 PM – USD – Unemployment Claims: Weekly jobless claims data.

3:30 PM – USD – Core Durable Goods Orders m/m: A measure of U.S. business investment.

3:30 PM – USD – Durable Goods Orders m/m: Broad measure of new orders for manufactured goods.

3:30 PM – USD – Preliminary GDP Price Index q/q: Inflation component of U.S. GDP.

5:00 PM – USD – Pending Home Sales m/m: Leading indicator of housing market trends.

Friday, February 28, 2025:

1:30 AM – JPY – Tokyo Core CPI y/y: Early inflation gauge for Japan.

All Day – EUR – German Preliminary CPI m/m: Inflation data for the Eurozone’s largest economy.

3:30 PM – CAD – GDP m/m: Canadian economic growth data.

3:30 PM – USD – Core PCE Price Index m/m: Fed’s preferred inflation metric.

4:45 PM – USD – Chicago PMI: Regional economic activity measure.

Market Insights: Key Charts to Watch

AUD/CAD – Daily Chart:

The Australian dollar broke above its descending trendline against the Canadian dollar, signaling potential bullish momentum. If this breakout holds, key upside targets include:

Resistance Levels: 0.9010, 0.9062, 0.9092, 0.9143

Support Levels: 0.8979, 0.8928

Key Data Impact:

Australian CPI: A stronger-than-expected reading could strengthen AUD, reinforcing the breakout.

Canadian GDP: A weak print could further propel AUD/CAD higher as growth concerns weigh on CAD.

Alternative Scenario:

If the price moves back below 0.8979, the breakout would be invalidated, potentially pushing AUD/CAD back into a bearish trend.

USD/JPY – Daily Chart:

USD/JPY has been in a downtrend with a bearish crossover between the 34 and 100 weighted moving averages. The recent break of key support suggests further downside potential, with key levels to watch:

Support Levels: 149.8, 148.5, 147.0, 144.6

Resistance Levels: 150.9, 152.4, 154.8

Key Data Impact:

U.S. Core PCE: A higher-than-expected inflation print could slow the dollar’s decline.

Japan CPI: If inflation remains subdued, it may limit JPY appreciation.

Alternative Scenario:

A reversal above 150.9 could indicate a short-term recovery, challenging the bearish momentum.

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