USD
- The Fed left interest rates unchanged as expected at the last meeting with basically no change to the statement.
- Fed Chair Powell stressed once again that they are proceeding carefully as the full effects of policy tightening have yet to be felt.
- The US Core PCE last week came in line with forecasts with the disinflationary progress continuing steady.
- The labour market continues to show weakness as Continuing Claims are now rising at a fast pace with the last NFP report missing across the board and this week’s Job Openings and ADP coming below forecasts, although the Jobless Claims were better than expected.
- The ISM Manufacturing PMI last week missed expectations falling further into contraction, while the ISM Services PMI this week beat forecasts holding on in expansion.
- The hawkish Fed members recently shifted their stance to a more neutral position.
- The market expects the Fed to start cutting rates as soon as Q1 2024.
EUR
- The ECB left interest rates unchanged as expected at the last meeting as the central bank has ended its tightening cycle.
- President Lagarde highlighted the weakness in the Eurozone economy and reaffirmed that rates will make a substantial contribution to curbing inflation.
- The Eurozone CPI last week missed expectations across the board further reaffirming that the ECB is done for the cycle with rate cuts likely coming soon.
- The labour market remains historically tight with the unemployment rate hovering at cycle lows.
- The recent Eurozone PMIs slightly beat expectations on both the Manufacturing and Services measures although the indexes remain in contraction.
- The ECB members continue to repeat that they will keep rates high for as long as necessary to bring inflation back to their 2% target, but the question in 2024 will be when to cut rates.
- The market expects the ECB to start cutting rates in Q2 2024.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD probed above the key resistance around the 1.0950 level but sold off soon after from the 1.10 handle. This drop made also the moving averages to crossover and the price to make a new lower low. The market structure has now switched to a bearish bias and that could also be supported from the fundamental side as contrary to the markets’ expectations, the ECB is likely to cut before the Fed.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a strong divergence with the MACD right into the key resistance which eventually led to the reversal. The price on this timeframe has been printing clear lower lows and lower highs and from a risk management perspective, a pullback into the 38.2% Fibonacci retracement level would be a better spot for new shorts for the sellers. The target should be the next swing low around the 1.0660 level and upon a further break lower, the key 1.05 handle.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has been diverging with the MACD for quite a while. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, given the break above the trendline, we could see a bigger pullback into the 38.2% or 61.8% Fibonacci retracement levels.
The sellers might want to split their positions in half as the price can react from both the levels. Alternatively, if the bearish momentum remains strong, the sellers are likely to pile in as soon as the price breaks below the recent low at 1.0755 to target a drop into the 1.05 handle. The buyers, on the other hand, will likely pile in at every break higher targeting eventually a new high.
Upcoming Events
Today all eyes will be on the US NFP report as it could increase the amount of rate cuts expected in 2024 or reverse some of them.
