Fundamental Overview
The USD came under pressure on Friday following the softer than expected US CPI report. The market pricing didn’t change much as it was already very dovish going into the report, but given the positive risk sentiment, the greenback remained on the backfoot.
Over the weekend, we got some very positive comments from US Treasury Secretary Bessent as US-China held trade talks in Malaysia. It looks like they’ve reached a deal, and we are now just waiting for the Trump-Xi meeting on Thursday where the two leaders are expected to confirm the positive developments.
The risk-on sentiment is expected to weigh on the dollar in the short-term, although Treasury yields could also erase the drop triggered by Trump’s escalation a couple of weeks ago. This could create some tension between bullish and bearish drivers, but for now there’s no strong reason for the dollar to rally amid the lack of key US data.
The Fed is widely expected to cut by 25 bps on Wednesday and keep the status quo given the lack of US data. For this reason, the decision is likely to be a non-event.
On the EUR side, nothing has changed fundamentally. On Thursday, we have the ECB policy decision where the central bank is widely expected to keep interest rates steady. The decision is likely to be a non-event as President Lagarde is highly likely to repeat the same old stuff and reaffirm their neutral stance.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD bounced on the key support zone around the 1.1573 level. The buyers will likely continue to target the 1.18 handle, while the sellers will want to see the price breaking lower to pile in for a drop into the 1.14 handle next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we broke out of the recent range at the key support zone and the price is now consolidating at the resistance turned support. This is where we can expect the buyers to step in with a defined risk below the support to position for a rally into the 1.1727 level. The sellers, on the other hand, will want to see the price falling back below the support to target a break below the recent lows.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the recent price action with the price retesting the broken resistance turned support. If the price breaks above the high around the 1.1648 level, we can expect the buyers to increase the bullish bets into the 1.1727 level next. The red lines define average daily range for today.
Upcoming Catalysts
On Wednesday we have the FOMC policy decision. On Thursday, we have the ECB policy decision and the Trump-Xi meeting. On Friday, we conclude the week with the Eurozone Flash CPI.
