Fundamental Overview
The USD strengthened a bit on Friday following some positive Trump’s comments on China as Treasury yields bounced and erased the Thursday’s losses. Overall, the US dollar performance has been mixed as markets have been driven by quick changes in risk sentiment since Trump’s tariffs threat.
On the domestic side, the US government shutdown continues to delay many key US economic reports. The dollar “repricing trade” needs strong US data to keep going, especially on the labour market side, so any hiccup on that front is weighing on the greenback.
The BLS will release the US CPI report on Friday despite the shutdown, so that’s going to be a key risk event. That will need to be seen in the context of US-China relations and any negative shock by that time though. If things go south, then the CPI will not matter much as growth fears will trump everything else.
On the EUR side, the single currency found support last week as the French political risk eased after Lecornu survived the no-confidence vote. On the monetary policy side, nothing has changed. The ECB is not expected to adjust rates for a long time unless we get significant deviation from their inflation target. In fact, the vast majority of ECB members is comfortable with the current rate setting and will not respond to small or short-term deviations from their target barring a clear shock in the economy.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD avoided a key downside breakout last week. The price eventually bounced back and extended the rally into the 1.17 handle before pulling back. If the pullback extends into the key support around the 1.1573 level, we can expect the buyers to step in there with a defined risk below the support to position for a rally into the 1.18 handle next. The sellers, on the other hand, will want to see the price breaking lower to pile in for a drop into the 1.14 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, there’s not much we can glean from this timeframe as the buyers will better off stepping in around the support, while the sellers will look for a downside breakout.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor downward trendline defining the current pullback. If the price comes back into the trendline, we can expect the sellers to lean on it with a defined risk above it to keep pushing into new lows. The buyers, on the other hand, will look for a break higher to pile in for a rally back into the 1.17 handle. The red lines define average daily range for today.
Upcoming Catalysts
The focus remains on the US-China developments but on Friday we will also get the US CPI report, and the Eurozone and US Flash PMIs.
