FUNDAMENTAL
OVERVIEW
USD:
The US Dollar continued to
weaken yesterday as the bearish momentum set by the USD/JPY intervention risk
remained intact. Late in the day, we got one final spike lower as Trump kind
of endorsed a weak dollar by saying that he wasn’t concerned with the
decline at all.
The selloff in the past
days wasn’t a fundamental-driven move but a “technical” one triggered by
intervention risks. In general, these moves are eventually faded. The problem
for the dollar is that there’s no strong reason for it to appreciate yet.
Today, we have the FOMC
decision where the central bank is expected to keep interest rates unchanged
and maintain a data-dependent approach for the next rate cuts. There shouldn’t
be any surprise at this meeting. Watch out for Powell and whether he unveils
his intention to remain on the board until 2028. That could trigger a hawkish
reaction in the markets.
February might be the month
when the US Dollar gets some relief as we get another set of economic data,
with the NFP report likely being pivotal for the market pricing. In fact, we’ve
been seeing notable improvements in the US Jobless Claims data that could point
to a re-acceleration in the labour market. The market is still pricing 48 bps
of easing by year-end. Those bets are likely to be pared back in case the data
strengthens and should provide support for the greenback.
EUR:
On the EUR side, the ECB
members are starting to feel
uneasy as EUR/USD crosses the 1.20 level. This is kind of a line in the
sand as ECB’s Vice President de Guindos last year said that a rise above 1.20
would complicate things for them.
This morning, we got a
couple of policymakers talking about it and flagging the risk of policy actions
if the euro appreciation were to negatively impact inflation. If the euro
strengthens too much and we get soft Eurozone inflation data in the next
months, then we can expect traders to price in another rate cut from the ECB.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSD broke through the 1.20 level
as the greenback remained on the backfoot. This is where we can expect the
sellers to step in with a defined risk above the recent high to position for a
drop back into the 1.16 handle. The buyers, on the other hand, will want to see
the price breaking above the 1.20 handle again to keep pushing into new highs.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see more that we have an upward trendline defining the bullish momentum. From a
risk management perspective, the buyers will have a better risk to reward setup
around the trendline to position for a rally into new highs. The sellers, on
the other hand, will look for a break lower to target the next trendline around
the 1.1850 level.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have a counter-trendline that could
act as resistance. The sellers will likely continue to lean on it to keep
pushing into new lows, while the buyers will look for a break higher to
increase the bullish bets into new high. The red line define the average daily range for today.
UPCOMING CATALYSTS
Todaywe have the FOMC rate decision
and Trump potentially announcing his Fed chair pick. Tomorrow, we get the
latest US Jobless Claims figures. On Friday, we conclude the week with the US
PPI report.
This article was written by Giuseppe Dellamotta at investinglive.com.