Fundamental
Overview
The USD sold off across the
board on Friday as Fed Chair Powell tilted more dovish by saying that “with
policy in restrictive territory, the baseline outlook and the shifting balance
of risks may warrant adjusting our policy stance.”
That saw traders firming up
expectations for a rate cut in September which now stands around 85%
probability with a total of 54 bps of easing by year-end. Overall, it’s not the
repricing in interest rates expectations that weighed on the greenback but hedges
being unwound.
Now, the focus turns to the
US NFP report next week which is going to be crucial and will influence greatly
interest rates expectations. Strong data might take the probability for a
September cut towards a 50/50 chance but will certainly see a more hawkish
repricing further down the curve. Soft data, on the other hand, will likely see
traders increasing the dovish bets with a third cut by year-end being priced
in.
On the EUR side, we haven’t
got anything new in terms of fundamentals after the US-EU trade deal that set
tariffs at 15%. Many ECB members are now taking a much more neutral approach to
rate cuts. They will need significant negative data to force them to cut
further. The market is pricing just 9 bps of easing by year-end and 15 bps by
the end of 2026, which indicates that the easing cycle has already ended.
EURUSD Technical
Analysis – Daily Timeframe
On the daily chart, we can
see that EURUSD rallied all the way up to the major trendline around the 1.1750 level. This is
where we can expect the sellers to step in with a defined risk above the
trendline to position for a drop back into the 1.16 support.
The buyers, on the other hand, will want to see the price breaking higher to
increase the bullish bets into a new cycle high.
EURUSD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see more clearly the strong move from the 1.16 support as Powell’s dovish tilt
triggered an unwinding in hedges and the momentum increased as buyers piled in.
There’s not much else we can add here as the sellers will look for a drop from
these levels, while the buyers will look for an upside breakout to target new
highs.
EURUSD Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor counter-trendline
defining the pullback. On an intraday basis, the buyers will likely lean on the
trendline to keep pushing into new highs, while the sellers will look for a
break lower to increase the bearish bets into the 1.16 support. The red lines
define the average daily range for today.
Upcoming
Catalysts
Tomorrow we have the US Consumer Confidence
report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we
conclude the week with the preliminary inflation data for the major Eurozone
economies and the US PCE price index.
This article was written by Giuseppe Dellamotta at investinglive.com.