USD
- The Fed left interest rates unchanged as expected at the last meeting 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.
- The latest US PCE missed expectations across the board with the Core 6-month annualised rate falling below the Fed’s target at 1.9%.
- The labour market has been softening via less job opportunities rather than more layoffs with the Initial Claims hovering around cycle lows and Continuing Claims remaining high.
- 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 maintaining the usual data dependent language.
- President Lagarde highlighted once again that the risks to the economy are skewed to the downside and that they did not discuss rate cuts, which was a pushback against the aggressive market’s rate cut pricing.
- 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 Eurozone PMIs missed expectations across the board with both the Manufacturing and Services sectors falling further into contraction.
- The ECB members continue to repeat that they will keep rates high for as long as necessary and that the market’s expectations are too aggressive.
- 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 has extended the pullback into the 1.09 region with the price approaching a key support zone around the 1.09 handle. In fact, we can see that we have the confluence with the trendline and the 61.8% Fibonacci retracement level, so we can expect at least a bounce. The buyers will likely lean on the trendline to position for a rally into new highs while the sellers will want to see the price breaking lower to increase the bearish bets into the lows.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the latest leg higher diverged with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the target for the pullback should be right around the support zone highlighted by the blue box where we can also find the confluence with the 1.09 handle and the recent swing low level.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the sellers will have another opportunity to short the pair before the 1.09 handle. In fact, we can see that we have a nice resistance zone around the 1.10 handle where there’s the confluence with the downward trendline and the 38.2% Fibonacci retracement level. That’s where we can expect the sellers to step in with a defined risk above the trendline to target the 1.09 handle first and a break lower next. The buyers, on the other hand, will want to see the price breaking higher to pile in and position for a rally into new highs.
Upcoming Events
This week is full of key economic data which will culminate with the NFP report on Friday. We begin today with the US ISM Manufacturing PMI and Job Openings and given the recent trends there could be room for disappointment. Later in the day, we will get the release of the FOMC Minutes, but it’s not expected to be market-moving given that it’s three weeks old data. Tomorrow, we will have another slate of US labour market data with the release of the US ADP and Jobless Claims figures. Finally, on Friday, we conclude the week with the Eurozone CPI, the NFP report and the ISM Services PMI.
