KEY POINTS:
- The Fed delivers on expectations, but Powell sounds more dovish
- The ECB is expected to keep everything unchanged as they maintain a neutral stance
- EURUSD extends above a key swing level, opening the door for new highs
- Focus centres on US NFP and CPI reports this week
FUNDAMENTAL OVERVIEW
USD:
The USD has been weakening across the board since last week’s FOMC decision. The Fed delivered on expectations cutting by 25 bps and signalling a higher bar for further rate cuts, but Fed Chair Powell’s press conference was seen as fairly dovish.
In fact, instead of sounding as neutral as possible and stressing data-dependency, he downplayed the inflation risk and emphasized the labour market weakness, suggesting that there’s more tolerance for higher inflation than for weaker labour market.
The focus this week will be on the US NFP and CPI reports that will wrap up the last real trading week of the year before market participants prepare for the holidays. Right now, the market is pricing 57 bps of easing by the end of 2026.
If we get strong US data, especially on the labour market side, we will likely see a hawkish repricing which would give the US dollar a boost. On the other hand, weak data should weigh on the greenback further as the market will bring rate cut bets forward.
EUR:
On the EUR side, the ECB is widely expected to hold interest rates steady and refrain from giving away too much forward guidance. The ECB members have repeatedly said that the current policy is appropriate, and they won’t respond to small or short-term deviations from their 2% target.
Moreover, they added that the next moves could be either a cut or a hike. The data has been supporting the central bank’s neutral stance, and the market has even started to price in some chances of a hike next year.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD broke above the major swing level at 1.1728 opening the door for a move into the 1.1778 level next. From a risk management perspective, the buyers will have a better risk to reward setup around the major trendline to position for a rally into new highs, while the sellers will look for breaks below the key levels to keep piling in for new lows.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that the price has been consolidating just above the 1.1728 level recently. The buyers will likely continue to step in around the 1.1728 level to keep pushing into the 1.1778 level, while the sellers will look for a break lower to target a deeper pullback into the major trendline.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see more clearly the tight range between the 1.1728 support and the 1.1750 resistance. The market participants will likely continue to play the range until we get a breakout on either side. The red lines define average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the Eurozone Flash PMIs and the US NFP. On Thursday, we have the ECB rate decision and the US CPI data.
