Fundamental Overview
The USD recovered some of the losses triggered by Powell’s dovish tilt at the Jackson Hole Symposium. Traders are now focused on the US labour market data due next week that will culminate with a crucial NFP report on Friday. In fact, the data will influence interest rates expectations greatly.
Right now, the market is pricing an 89% probability of a rate cut in September and a total of 55 bps of easing by year-end. 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 and support the dollar. Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in and weighing on the greenback.
On the EUR side, the currency weakened across the board in the first part of the week due to some French politics drama. On Monday, the French Prime Minister called for a confidence vote on September 8 and the markets priced in a collapse given that he’s expected to lose. Other than that, we haven’t got anything new in terms of fundamentals.
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 20 bps by the end of 2026, which indicates that the easing cycle might have already ended.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD rejected the major trendline around the 1.1740 level and eventually pulled all the way back to the key support around the 1.16 handle. That’s where the buyers stepped in once again to position for a rally back into the trendline. The sellers will need a break below the support to open the door for a drop into the 1.14 handle next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the strong bounce from the 1.16 support. We now have the most recent swing high at 1.1664 that could act as resistance. That’s where we can expect the sellers to step in with a defined risk above the level to position for a break below the 1.16 support. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the major trendline.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have the most recent swing low around 1.1627 that act as support. Overall, the price action will likely be messy as we head into the key US labour market data, so we could see many fakeouts.
Nonetheless, we can expect the buyers to step in at the minor support with a defined risk below it to position for a rally into the major trendline. The sellers, on the other hand, will look for a break lower to position for a drop back into the 1.16 support. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the latest US Jobless Claims figures. Tomorrow, we conclude the week with the preliminary inflation data for the major Eurozone economies and the US PCE price index.
