FUNDAMENTAL
OVERVIEW
USD:
The US dollar weakened across the board this week following de-escalation
in the Middle East and increased hopes for a US-Iran deal.
The bearish momentum waned though probably because the anticipated timeline for the deal passed without an announcement.
Nevertheless, the hopes for a deal will likely keep the greenback on the
backfoot for now unless we get another escalation.
The next major event will be the US CPI report next week. The data will be
critical for the September FOMC decision and the Jackson Hole Symposium.
A hot report will likely trigger a rally in the US dollar, with traders increasing
rate hike bets. A soft report, on the other hand, should reduce further the
risk of Fed tightening and put more pressure on the greenback.
Today, we have the NFP report. Although the NFP is generally one of the
most market-moving economic releases, the US CPI should be more important
because the Fed is focused on inflation. Policymakers have been repeating that
the labour market is stable and that it’s not a source of inflation.
That’s because wage growth has been easing steadily since 2022 and it’s
hovering around pre-covid levels. Therefore, I would focus more on average
hourly earnings rather than the employment numbers today. It goes without
saying that big deviations from the expected numbers might still trigger
sizable moves.
EUR:
On the EUR side, the ECB left
interest rates unchanged at the last meeting but communicated via the usual
post-meeting media “leaks” that it’s ready to hike at the September meeting if
the inflation outlook were to deteriorate.
The majority of
policymakers that spoke after the decision stressed data-dependence and
refrained from pre-committing to a policy move in September. They have also
highlighted the lack of clear evidence of second-round effects and stable
inflation expectations.
Nevertheless, the market
pricing is favouring a rate hike with 76% chance of an increase in September. We
will still get another Eurozone inflation report before the September, and oil
prices could still drop further once an Iran deal is confirmed. Therefore, a
rate hike is not yet a certainty.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDis consolidating as the
momentum waned at the major downward trendline. This is where the sellers are
likely stepping in with a defined risk above the trendline to position for a
drop into the 1.13 handle. The buyers, on the other hand, continue to wait for
a breakout to increase the bullish bets into the 1.18 handle next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see more clearly the consolidation around the trendline. The swing low around
the 1.15 handle should now act as key support. If the price breaks below it, we
can expect the sellers to increase the bearish bets into new lows. The buyers,
on the other hand, will likely step in around the swing low with a defined risk
below it to keep targeting a break above the trendline.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the price action might remain rangebound until the
US CPI report, although we can expect short-term spikes today with the NFP data.
We will likely need very big deviations in the NFP report to trigger more
sustained moves as slight beats or misses won’t change much in the bigger picture.
The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we conclude the
week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.