Fundamental Overview
The USD has been stronger this week, but the tailwinds have been coming from outside the US. In fact, the greenback’s strength has been coming mostly from USDJPY flows and the weakness from other currencies like the EUR with the French political uncertainty and the NZD with the RBNZ’s 50 bps cut.
Domestically, nothing has changed for the US dollar as the US government shutdown continues to delay many key US economic reports. The dollar “repricing trade” needs strong US data to keep going, especially on the labour market side, so any hiccup on that front is likely to keep weighing on the greenback.
The BLS announced yesterday that it will release the US CPI report despite the shutdown, but it will likely be postponed from the original date. In case we get hot data, we will likely see a hawkish repricing in interest rates expectations with the December cut being priced out. Conversely, a soft report shouldn’t change much in terms of pricing, but it will likely weigh on the greenback anyway due to recent positioning.
On the EUR side, nothing has changed in the meantime. The ECB left interest rates unchanged at the last meeting as widely expected with limited forward guidance other than the usual data-dependent approach. President Lagarde made it clear that the central bank finished cutting rates after she said that growth risks are balanced and the disinflationary process was over. The ECB is not expected to adjust rates for a long time unless we get significant deviation from their inflation target.
We got some weakness in the euro at the start of the week due to the resignation of French PM Lecornu but that is now old news as President Macron is expected to name a new prime minister in the next 48 hours as a majority of lawmakers is against holding a snap parliamentary election.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD broke below a key support zone yesterday despite the lack of catalysts. The next target for the sellers should be the 1.14 handle as there are no clear support levels before that. The buyers, on the other hand, will want to see the price rising back above the broken support to invalidate the breakout and target a pullback into the major downward trendline around the 1.1680 level.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can that we have a minor downward trendline defining the bearish momentum on this timeframe. The sellers will likely lean on the trendline with a defined risk above it to keep pushing into new lows. The buyers, on the other hand, will look for a break higher to pile in for a rally into the major trendline.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor upward trendline defining the current pullback into the downward trendline. The buyers will likely lean on the trendline to keep pushing into new highs, while the sellers will look for a break lower to increase the bearish bets into new lows. The red lines define average daily range for today.
Upcoming Catalysts
Today we conclude the week with the University of Michigan Consumer Sentiment report.
