FUNDAMENTAL
OVERVIEW
USD:
The US dollar has
been supported recently despite a dovish repricing triggered by Fed’s Williams
and Fed’s Jefferson comments that pushed back against expectations of a rate
hike in October.
The main reason were
risk-off flows into the greenback due to European debt concerns. The focus has
been particularly on France, where political uncertainty and concerns over the
country’s large fiscal deficit have pushed French government bond yields higher
and widened the spread over German Bunds to its highest level since the
eurozone debt crisis.
A stabilization in French spreads could allow some of the euro’s risk
premium to unwind and trigger a pullback in the US dollar, while further
widening and contagion to other countries would likely keep the greenback
supported.
Moreover, the US-Iran negotiations continue to be at a stalemate and with a
light calendar this week, the focus will probably remain on the Middle East and
the French bonds.
A breakthrough would be negative for the US
dollar as the aggressive rate hike bets will likely get pared back. A re-escalation,
on the other hand, will likely continue to support the greenback into new
highs.
EUR:
On the EUR side, the
probabilities for a rate hike in October evaporated following the surge in the French-German
bond spread. Traders expects the ECB to hold off from hiking for now to avoid spooking
markets further.
In terms of economic data, the
latest Eurozone CPI showed headline inflation increasing further mainly due to
energy prices, but the core measure remained relatively contained, ticking up
to 2.5% vs 2.4% in the prior month.
Energy prices have eased a
bit in recent weeks and the situation in the Middle East improved somewhat as
US and Iran continue to negotiate while refraining from new attacks. Looking
ahead, the euro will likely be more sensitive to developments in the bond
market, so traders will keep a close eye on that.
There are already some tentatively
positive signs as France’s
government unveiled plans to sharply narrow the budget deficit by restraining
spending and raising tax revenues. This has helped to stabilise the bond
market in the short-term and we’ve seen a tightening in the OAT-Bund spread and
a rebound in the euro.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDhas been selling off heavily
in the past weeks. We have a downward trendline defining the bearish momentum.
If we get a pullback, we can expect the sellers to lean on the trendline, with
a defined risk above it, to keep pushing into new lows. The buyers, on the
other hand, will look for a break higher to start piling in for a rally into
the next major trendline around the 1.1550 level.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the most recent lower high at 1.1285 that could act as resistance. The
sellers will likely step in around the trendline and the lower high to keep
pushing into new lows, while the buyers will need a break to open the door for
new highs and potentially reverse the recent trend.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, we
have a minor upward trendline defining the current pullback. If the price moves
back into the trendline, we can expect the buyers to lean on it, with a defined
risk below it, to keep targeting a break above the downward trendline. The sellers,
on the other hand, will want to see the price breaking lower to increase the
bearish bets into new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrowwe
have the FOMC meeting minutes. On Thursday, we get the latest US Jobless Claims
figures. On Friday, we conclude the week with the University of Michigan
Consumer Sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.