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 latest US Core PCE came in line with forecasts with the disinflationary progress continuing steady.
- The labour market has been showing signs of weakening lately but last week we got some strong releases with the US Jobless Claims and the NFP coming in strongly.
- The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- The University of Michigan Consumer Sentiment survey came in much better than expected with inflation expectations tumbling.
- The hawkish Fed members recently shifted their stance to a more neutral position.
- The market expects the Fed to start cutting rates in Q2 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 recent Eurozone CPI 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.
- The market expects the ECB to start cutting rates in Q1 2024.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD finally found some support around at the 50% Fibonacci retracement level near the 1.07 handle. The pair has been falling steadily since the 1.10 handle as the market started to price in a higher chance that the ECB will cut rates before the Fed. The recent selloff switched the bias to the downside as the price made a new lower low and the moving averages crossed to the downside.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the latest leg lower diverged with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. The target for the pullback is generally the base of the divergent formation, which in this case comes at the swing high at 1.0815 level. That’s where we can expect the sellers to step in with a defined risk above the level to position for the resumption of the downtrend. The buyers, on the other hand, will want to see the price breaking higher to confirm a reversal and position for a rally back into the 1.0950 resistance.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we’ve been diverging with the MACD for quite a while. We can see that the base of the divergence on this timeframe is even higher, so if the price breaks above the 1.0815 level, there’s a good chance that we will see a rally into the 1.09 handle next.
Upcoming Events
This week is going to be a big one with the US CPI and the FOMC and ECB rate decisions on the agenda. We begin today with the release of the US CPI report where the market will want to see how the disinflationary trend is going. Tomorrow, we have the US PPI data followed by the FOMC rate decision where the Fed is expected to keep interest rates unchanged. On Thursday, we have the ECB rate decision where the central bank is expected to keep rates unchanged, while later in the day we get the US Retail Sales and Jobless Claims figures. On Friday we conclude the week with the Eurozone and the US PMIs.
