FUNDAMENTAL
OVERVIEW
USD:
The US dollar strengthened across the board yesterday after the US PCE data.
The reaction was honestly odd because literally nothing has changed. The Core
figures were in line with forecasts and the market pricing held steady, with 35%
chance of a rate hike in September. Therefore, I would dismiss it as just noise.
Looking ahead, the key events will be Fed Chair Warsh’s speech at the
Jackson Hole Symposium tomorrow, a potential US-Iran deal in the coming days and
the US CPI report on September 11.
After the Treasury buyback announcement and Bessent’s “verbal” intervention
to suppress long-term yields, traders will be eager to see whether Fed Chair Warsh
leans against the easing in financial conditions.
If he doesn’t, the US dollar will likely come under renewed pressure from
further easing in financial conditions and the dovish repricing in near-term
interest rate expectations. On the other hand, if he pushes back saying things
like “recent easing in financial conditions, if sustained, could
complicate the process of returning inflation to our target” or “if
recent easing threatens progress toward price stability, we will not hesitate
to respond appropriately” and so on, the market may interpret it as a
signal for a potentially hawkish September FOMC and give the greenback a boost.
EUR:
On the EUR side, the ECB is
widely expected to hike interest rates by 25 bps in September, bringing the
policy rate to 2.50%. This was also confirmed by “ECB sources” which
reported that the central bank is ready to raise interest rates in September
but added that there’s little appetite to signal further tightening afterwards.
This means that the current
market pricing of 40 bps of tightening by year-end might be mispriced and the
euro could suffer a little if the economic data starts weakening. Nevertheless,
the EUR/USD pair will be driven mainly by the US dollar side for now.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDbroke above the major
trendline and extended the gains into the 1.17 handle following the US Treasury
buyback announcement. The natural target for the buyers should be the swing
high around the 1.1850 level, but the fundamentals will need to remain steady
for the trend to continue.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have
an upward trendline defining the bullish momentum. The buyers will likely lean
on the trendline with a defined risk below it to keep pushing into new highs.
The sellers, on the other hand, will look for a break lower to pile in for a
drop into the 1.15 handle next.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, we have
a minor downward trendline defining the pullback into the 4-hour trendline. The
sellers will likely lean on the downward trendline with a defined risk above it
to position for a break below the 4-hour trendline and target new lows. The
buyers, on the other hand, will want to see the price breaking higher The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the US Jobless Claims figures. Tomorrow,
we conclude the week with Fed Chair Warsh’s speech at the Jackson Hole
Symposium.
This article was written by Giuseppe Dellamotta at investinglive.com.