• EUR/USD bears enter Wall Street homestretch.
• US stocks plunge ahead of this week’s earnings and major calendar events such as the ECB, Fed and US NFP.

The EUR/USD has been forced back as shares fall to new session lows, led by the Nasdaq, the technology market, which has lost more than 1% on Monday. At time of writing, EUR/USD is down around 0.2% and has fallen from a recent high of 1.0913 to a recent low of 1.0839.

A big week is ahead and markets are squaring off ahead of big events like the Federal Reserve, European Central Bank and US Nonfarm Payrolls showdown and grand finale. First of all, the markets foresee a rise of 25 basis points from the Federal Reserve, but they are also considering the possibility that the reference rate will reach a maximum of 4.93% in June, compared to the current 4.33%. There are also voices that advocate that the central bank reduce it to 4.52% in December. However, some analysts believe that the market is wrong, considering how tight the labor market is. Some Fed officials have resisted market calls for a turnaround, saying they will have to keep rates in tight territory for a while to reduce inflation.

The ECB will be key

As for the ECB, the markets have been short on comment from ECB officials of late and there hasn’t been much data to go by either. Instead, the sentiment is for a 50 basis point rise followed by hawkish comments from Governor Christine Lagarde. There is room for things to get interesting during the press conference,” say the TD Securities analysts, who add that “we believe that Lagarde will be tougher than expected and will repeat her previous forecast of further increases of 50 basis points in March and May”.

Danske Bank analysts ultimately see the ECB’s terminal rate at 3.25% in May, but say risks remain to the upside. They also note that preliminary HICP figures for January will be released just before Wednesday’s meeting. We expect a rebound both broadly (9.6% vs. 9.2%) and underlying (5.4% vs. 5.2%).”

The grand finale will come with Friday’s US nonfarm payrolls, for which consensus calls for an increase of 185,000 jobs from 223,000 in December, according to analysts at Brown Brothers Harriman. Overall, the market employment remains tight and it is difficult to see how wage pressures can fall much further given this rigidity,” the analysts argued.