Here’s Citi’s February forecast for EURUSD

The EURUSD pair has mostly fluctuated within a limited range throughout January, influenced by varying market expectations from the European Central Bank (ECB) and the Fed.

Citi Research analysts led by Brian Levine believe the potential catalysts this week will likely create more confusion than clarity, hence they expect the EURUSD pair to continue to move within this range until more definitive trends are visible.

However, the analysts also acknowledge that “risks to this tactical view are skewed towards EURUSD downside.”

As it failed to make a breakout, EURUSD has remained between its 200-day and 55-day moving averages since mid-January, influenced by factors like central bank officials' stance on rate cuts, unexpected positive data, and uncertainties about rate cut timings.

Despite the upcoming week's significant events, including FOMC, Eurozone CPI, U.S. labor data, and the Treasury’s QRA, they are likely to bring “more noise” rather than clarity. Notably, the market has reversed the initial rate cuts anticipated since the December FOMC meeting.

“So while we don’t expect Chair Powell to ‘out-dove’ his December FOMC remarks, we also don’t think this is the appropriate bar given repricing over the interim, suggesting a more neutral USD setup,” Levine and his team said.

Despite a neutral stance on the FOMC day, upcoming catalysts lean towards a positive outlook for the USD, Citi said in the note.

Recent U.S. data has mostly exceeded expectations and while eurozone and U.S. economic surprises are similar this month, a potential drop in eurozone CPI, especially in Germany, and an expected rise in U.S. NFP could impact market pricing.

Should that happen, a downswing in eurozone CPI might have a more significant influence, considering that approximately 6 basis points in rate cuts are expected for the upcoming March ECB meeting, in contrast to around 13 basis points anticipated for the March FOMC.

By Vahid Karaahmetovic

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