USD
- The Fed left interest rates unchanged as expected with a shift in the statement that indicated the end of the tightening cycle.
- The Summary of Economic Projections showed a downward revision to Growth and Core PCE in 2024 while the Unemployment Rate was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts in 2024 compared to just two in the last projection.
- Fed Chair Powell didn't push back against the strong dovish pricing and even said that they are focused on not making the mistake of holding rates high for too long, which implies a rate cut coming soon.
- The US CPI this week came in line with expectations with the disinflationary progress continuing steady. This was also confirmed by the US PPI yesterday where the data missed estimates.
- 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 market expects the Fed to start cutting rates in 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 recently bounced on the 50% Fibonacci retracement level and surged yesterday following the Fed’s pivot. The buyers are now eyeing a break above the resistance around the 1.0950 level to then start targeting a new cycle high above the 1.13 handle. Today there’s the ECB rate decision which might be even more dovish than the Fed’s one, so that could offer a pullback or even reverse the entire rally, so watch out!
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a divergence with the MACD right into the 50% Fibonacci retracement level. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we got a pullback into the swing high first where the sellers stepped in to position for a drop into new lows. The Fed decision yesterday though, invalidated the bearish setup with the price breaking higher and confirming a reversal. If we get a pullback into the 1.0830 level, the buyers will likely step in with a defined risk below it to position for a rally into new highs.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has been diverging with the MACD into the 50% Fibonacci retracement level for a while. The target is generally the start of the divergent formation, which in this case was at the swing level at 1.0912. The price has reached the target in the APAC session and now it’s about waiting for the ECB rate decision. The sellers may expect the ECB to be more dovish and thus pile in here with a defined risk above the level to position for a drop into the 1.0830 support. The buyers, on the other hand, should wait for the pullback into the support for a better risk to reward setup.
Upcoming Events
Today 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. Tomorrow, we conclude the week with the Eurozone and the US PMIs.
