Fundamental Overview
The USD rallied across the board last week after a slate of strong US data. The focus was mainly on Jobless Claims which beat expectations by a big margin with Initial Claims falling to the lowest level since July and Continuing Claims improving further. This triggered a hawkish repricing in interest rates expectations since the Fed started cutting rates solely due to weaker labour market data.
This means that if we continue to get stronger labour market data, the Fed could start turning more hawkish again and we might not get another cut in October, or more probably in December. Therefore, there’s still plenty of room for the US dollar to appreciate in case of strong data as the market’s pricing remains too dovish. The Fed projected 75 bps of easing by the end of 2026, while the market is still pricing 104 bps.
The greenback erased all the gains triggered by last week’s data in the meantime as we are likely experiencing a pullback after a very strong rally. Other possible reasons include the government shutdown fears and quarter-end flows.
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.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD fell further into new lows last week with the sellers targeting the major upward trendline. That’s where we can expect the buyers to step in with a defined risk below the 1.16 support to position for a rally into a new cycle high. The sellers, on the other hand, will look for downside breaks to increase the bearish bets into the 1.1392 level next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see 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 position for a drop into the 1.16 support. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 1.1830 level next.
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. If the price falls into it, we can expect the buyers to step in with a defined risk below it to keep pushing into new highs, while the sellers will look for a break lower to increase the bearish bets into the 1.16 support. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we get the French and German inflation reports, the US Job Openings data and the US Consumer Confidence report. On Wednesday, we have the Flash Eurozone CPI, the US ADP and the US ISM Manufacturing PMI. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP report and the US ISM Services PMI. Keep also an eye on Fed speakers.
