Fundamental Overview
The USD sold off across the board on Friday following another soft NFP report. The dovish bets on the Fed increased as a result and the market is now expecting three rate cuts by year-end (70 bps). Moreover, we have also an 8% probability of a 50 bps cut in September but that will likely happen only if we get a soft CPI report on Thursday. In that case, the greenback will likely weaken further into the FOMC meeting.
Overall, if one zooms out, the US dollar continues to range although the dovish bets on the Fed keep weighing on the currency. Part of that could be the fact that the bearish positioning on the dollar could be overstretched and we might be at the peak of the dovish pricing. In fact, if the Fed cuts trigger stronger economic activity in the next months, the rate cuts in 2026 could be priced out and support the dollar. Nevertheless, the trend is still skewed to the downside and we might need strong data to reverse it.
On the EUR side, the only fundamental development we got recently was the French political drama. Today, we get the French confidence vote in the afternoon where the Prime Minister is expected to lose. This should be already priced in, but could cause some intraday noise.
In terms of monetary policy, nothing has changed. Many ECB members are now taking a much more neutral approach to rate cuts. They will need significant negative data to force them to cut further. The market is pricing just 8 bps of easing by year-end and 19 bps by the end of 2026, which indicates that the easing cycle might have already ended.
The ECB rate decision this week is expected to be a non-event as the central bank will keep interest rates steady and don't offer much in terms of forward guidance other than mentioning that they are now well positioned and will need strong reasons to cut further.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that EURUSD is threatening a breakout of the month-long range. If the price breaks to the upside, we can expect the buyers to pile in with a defined risk below the zone to position for a rally into a new cycle high. The sellers, on the other hand, will continue to step in around this resistance to keep targeting the 1.16 support.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the upward spike following the soft NFP report and then a pullback into the weekend. If we get a bigger pullback from this resistance, we can expect the buyers to step in around the minor support at 1.1680. The sellers, on the other hand, will look for a break below that support to increase the bearish bets into the 1.16 support next.
Upcoming Catalysts
On Wednesday we get the US PPI report. On Thursday, we have the ECB rate decision, the US CPI report and the latest US Jobless Claims figures. On Friday, we conclude the week with the University of Michigan Consumer Sentiment report.
