Get ready for a (potentially) tumultuous Thursday, especially for euro traders (which likely includes most FX traders, seeing as EURUSD is the world’s most popularly traded currency pair).

At 13:30 GMT today (Thursday, March 10th 2022), there are two major events that are set to happen simultaneously:

• The US February inflation (consumer price index) data is released
• European Central Bank President, Christine Lagarde, will be holding a press conference, about 45 minutes after the ECB announces its policy decision

What are markets expecting for the US inflation data?

The US consumer price index (CPI) is forecasted to grow by 7.9% last month compared to prices in February 2021.

If so, that would be the highest CPI figure since January 1982.

NOTE: The CPI measures how fast consumer prices are changing.

The main way that the Federal Reserve a.k.a. the Fed suppresses inflation is by raising interest rates.

If the CPI announcement at 13:30GMT today shows higher-than-expected inflation, that should also mean that the Fed has little choice but to raise interest rates in the US more frequently this year (markets are now forecasting 6 rate hikes for 2022), and even perhaps by a larger amount each time.

What are markets expecting out of ECB’s Lagarde?

Now this one is a lot trickier.

Back in early February, the European Central Bank had already announced to the markets that it intends to ease away from its supportive measures that had been rolled out amid the pandemic.

But that was before Russia invaded Ukraine.

Now, with war raging on and casting a dark cloud over how markets view the Eurozone’s economic performance in the months ahead, the ECB might have to reverse course and continue supporting the economy.

To be clear, the ECB isn’t expected to make any actual policy adjustments today.

However, given the forward-looking nature of markets, investors and traders are more concerned with what the ECB intends to do in the future.

Hence markets will be eager to know whether the ECB will press on with raising interest rates (perhaps in September) to combat inflation, knowing that such a move could unintentionally worsen the EU’s economic performance (higher interest rates tends to lower consumption spending as well) … or worse, trigger a recession.

How might EURUSD react to ECB announcement + US inflation?

SCENARIO 1:

US inflation higher than 7.9% (that encourages the Fed to hike rates higher and faster)

+

ECB’s Lagarde saying there’s less chance of a rate hike

=

potentially EURUSD being dragged lower back towards 1.08.

———–

SCENARIO 2:

US inflation that’s substantially lower than 7.9% (that suggests consumer prices are cooling and the Fed can afford to be less aggressive with rate hikes)

+

ECB’s Lagarde saying that she and her colleagues will press ahead with rate hikes this year

=

potentially EURUSD being boosted back above 1.11, and testing the January-2022 low of 1.11214 for resistance.

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