Fundamental Overview
The USD has been stronger across the board since the hawkish turn from Fed Chair Powell at the last FOMC press conference. The repricing in interest rate expectations acted as a tailwind for the greenback as Treasury yields continued to push higher.
Yesterday, we got a couple of strong US data. The US ADP beat forecasts (although that was expected) and the ISM Services PMI came in much better than expected with the price index pushing into a new cycle high.
Despite the strong data, the greenback failed to extend the rally. This is generally a signal of a short-term top with the market needing more to keep the trend going. In fact, the market pricing is now showing a 60% probability of a December cut, which is just right. The data in December will probably have the final say and hopefully we will get an NFP and CPI report before the next FOMC decision.
On the EUR side, nothing has changed fundamentally. The ECB decision last week didn’t offer anything new and kept everything unchanged. ECB policymakers continue to repeat that the current policy is appropriate and that they won’t respond to a small or shot-term deviation from their 2% target. The recent Eurozone data has been supporting the central bank stance as PMIs showed a rebound in economic activity and core inflation remained at 2.4% Y/Y.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD broke below the key support zone around the 1.1573 level opening the door for a drop into the 1.1392 level next. From a risk management perspective, the sellers will have a better risk to reward setup around the 1.1573 level and the major downward trendline. The buyers, on the other hand, will look for an upside breakout to target a rally back into the 1.18 handle next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor resistance around the 1.1542 level. That’s where we can expect the sellers to step in with a defined risk above the resistance to position for a drop into new lows. The buyers, on the other hand, will look for a break higher to extend the pullback into the major trendline.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor support around the 1.1497 level. If we get a pullback into the support, we can expect the buyers to step in 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 pile in and target a drop into new lows. The red lines define average daily range for today.
Upcoming Catalysts
Tomorrow we conclude the week with the US University of Michigan Consumer Sentiment report.
