FUNDAMENTAL
OVERVIEW
USD:
The US dollar has
been losing ground ever since the NFP report got released. This happened mainly
because the market focus was not on the NFP report, but on the CPI. The market
pays attention to the data that the central bank is focused on, and the Federal
Reserve is currently focused on inflation.
Today, we get the
US PPI report and although it might be market-moving, the US CPI due tomorrow
remains the key event ahead of the FOMC decision next week.
A soft or in-line CPI will likely weaken
the dollar as Fed’s Waller mentioned that he won’t consider a rate
hike unless we get a hot CPI.
Conversely, an upside surprise in core monthly inflation data will likely
trigger another rally on a hawkish repricing.
Keep in mind that the market is also
focused on the Iran war and the surging oil prices as they add upside inflation
risks. For this reason, the CPI reaction might not even be as straight-forward
as expected, so traders might want to use a lower position size.
EUR:
On the EUR side, the ECB
is widely expected to hike interest rates by 25 bps today, bringing the
policy rate to 2.50%. The central bank is expected to retain a data-dependent,
meeting-by-meeting approach and Lagarde isn’t seen explicitly pre-committing to
another hike.
We also get the macroeconomic
projections where growth forecasts are expected to be revised higher, while near-term
inflation might be revised lower. Markets are currently pricing around 48bps of
tightening by year-end and 85bps by the end of 2027. This means traders expect
the ECB to hike at least three times by December 2027, including today’s
increase.
That is a significant
amount of tightening already embedded in the curve. Therefore, the risks for
the euro are skewed to the downside, as the ECB will need to
“outhawk” market’s expectations to trigger a hawkish repricing and
give the euro a boost.
A 25bps hike followed by a
cautious Lagarde would be taken as more dovish and weigh on the euro, as the
rate hike bets would get pared back. If Lagarde emphasizes that the ECB is
prepared to continue hiking should inflation risks persist, the euro could see
some upside as it would signal more “appetite” for further
tightening.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDhas been slowly edging higher
after bouncing from the 1.1560 support. The natural target for the buyers is
the 1.1711 high, and they will need to break above that to open the door for a
rally into the 1.1850 level next. The sellers, on the other hand, will likely
step in around those levels with a defined risk above to position for a drop into
the 1.14 support.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, the swing
high around the 1.1661 is going to be key as that’s when Warsh delivered his
hawkish speech. We can expect the sellers to step in around the swing high with
a defined risk above it to position for a drop into the 1.1560 support. The
buyers, on the other hand, will want to see the price breaking higher to
increase the bullish bets into the1.1711 level next.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, we have
an upward trendline defining the bullish momentum. If we get a pullback, we can
expect the buyers to 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 1.1560 support next. The red lines define
the average daily range for today.
UPCOMING CATALYSTS
Today, we have the
ECB rate decision, the US PPI report and the US Jobless Claims figures. Tomorrow,
we conclude the week with the US CPI report.
This article was written by Giuseppe Dellamotta at investinglive.com.