Fundamental Overview
The USD sold off across the board on Friday as Fed Chair Powell tilted more dovish by saying that “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
That saw traders firming up expectations for a rate cut in September which now stands around 85% probability with a total of 54 bps of easing by year-end. Overall, it’s not the repricing in interest rates expectations that weighed on the greenback but hedges being unwound.
Now, the focus turns to the US NFP report next week which is going to be crucial and will influence greatly interest rates expectations. Strong data might take the probability for a September cut towards a 50/50 chance but will certainly see a more hawkish repricing further down the curve. Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in.
On the EUR side, we haven’t got anything new in terms of fundamentals after the US-EU trade deal that set tariffs at 15%. 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 9 bps of easing by year-end and 15 bps by the end of 2026, which indicates that the easing cycle has already ended.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD rallied all the way up to the major trendline around the 1.1750 level. This is where we can expect the sellers to step in with a defined risk above the trendline to position for a drop back into the 1.16 support. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into a new cycle high.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the strong move from the 1.16 support as Powell’s dovish tilt triggered an unwinding in hedges and the momentum increased as buyers piled in. There’s not much else we can add here as the sellers will look for a drop from these levels, while the buyers will look for an upside breakout to target new highs.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor counter-trendline defining the pullback. On an intraday basis, 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 the 1.16 support. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the US Consumer Confidence report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the preliminary inflation data for the major Eurozone economies and the US PCE price index.
