Fundamental Overview
The USD has been weak almost across the board since the NFP report as the softer than expected data triggered a quick dovish repricing and a change in stance for many Fed members.
The market is pricing 57 bps of easing by year-end compared to just 35 bps before the NFP release. It’s highly likely that more benign data will see Fed Chair Powell opening the door for a cut in September at the Jackson Hole Symposium.
The focus now turned to the US CPI report. We saw some dollar strength yesterday which could have been hedging activity into the risk event. The recent Fedspeak suggests that a rate cut in September might be unavoidable, so we might need very hot inflation data to change their mind (and of course a good NFP report in September).
On the EUR side, we haven’t got anything new in terms of fundamentals after the US-EU trade deal that set tariffs at 15%. 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 11 bps of easing by year-end so another rate cut has less than 50% chance of happening.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the key resistance around the 1.1575 level got breached last week and we extended the gains as more Fed members turned dovish. We have now pulled back into the resistance now turned support and this is where the CPI will likely decide the next direction. Buyers will look for a bounce and a rally into the 1.1750 level, while the sellers will look for a break lower and target new lows.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the 1.1590 support zone. This is where we can expect the buyers to step in with a defined risk below the zone to position for a rally into the major downward trendline around the 1.1750 level. The sellers, on the other hand, will look for a break lower to pile in for a drop into the 1.14 handle.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much we can add here as the buyers will look for a bounce, while the sellers will target a break. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US CPI report. On Thursday, we get the US PPI and the US Jobless Claims figures. On Friday, we conclude the week with the US Retail Sales and the University of Michigan Consumer Sentiment report. Focus also on Fedspeak, especially after the US CPI data.
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