FUNDAMENTAL OVERVIEW
USD:
The US Dollar continued to weaken yesterday as the bearish momentum set by the USD/JPY intervention risk remained intact. Late in the day, we got one final spike lower as Trump kind of endorsed a weak dollar by saying that he wasn’t concerned with the decline at all.
The selloff in the past days wasn’t a fundamental-driven move but a “technical” one triggered by intervention risks. In general, these moves are eventually faded. The problem for the dollar is that there’s no strong reason for it to appreciate yet.
Today, we have the FOMC decision where the central bank is expected to keep interest rates unchanged and maintain a data-dependent approach for the next rate cuts. There shouldn’t be any surprise at this meeting. Watch out for Powell and whether he unveils his intention to remain on the board until 2028. That could trigger a hawkish reaction in the markets.
February might be the month when the US Dollar gets some relief as we get another set of economic data, with the NFP report likely being pivotal for the market pricing. In fact, we’ve been seeing notable improvements in the US Jobless Claims data that could point to a re-acceleration in the labour market. The market is still pricing 48 bps of easing by year-end. Those bets are likely to be pared back in case the data strengthens and should provide support for the greenback.
EUR:
On the EUR side, the ECB members are starting to feel uneasy as EUR/USD crosses the 1.20 level. This is kind of a line in the sand as ECB’s Vice President de Guindos last year said that a rise above 1.20 would complicate things for them.
This morning, we got a couple of policymakers talking about it and flagging the risk of policy actions if the euro appreciation were to negatively impact inflation. If the euro strengthens too much and we get soft Eurozone inflation data in the next months, then we can expect traders to price in another rate cut from the ECB.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD broke through the 1.20 level as the greenback remained on the backfoot. This is where we can expect the sellers to step in with a defined risk above the recent high to position for a drop back into the 1.16 handle. The buyers, on the other hand, will want to see the price breaking above the 1.20 handle again to keep pushing into new highs.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see more that we have an upward trendline defining the bullish momentum. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline to position for a rally into new highs. The sellers, on the other hand, will look for a break lower to target the next trendline around the 1.1850 level.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have a counter-trendline that could act as resistance. The sellers will likely continue to lean on it to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into new high. The red line define the average daily range for today.
UPCOMING CATALYSTS
Todaywe have the FOMC rate decision and Trump potentially announcing his Fed chair pick. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PPI report.
