FUNDAMENTAL
OVERVIEW
USD:
The US dollar spiked
to the upside on Friday after the US NFP report showed job growth in August almost tripling the
consensus estimate of 56K. The dollar gains didn’t last long, though, as most
of the NFP-driven moves got faded thereafter.
This happened
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.
In fact, just a
day before the NFP report, Fed’s Waller mentioned that he would support keeping
interest rates unchanged at the upcoming FOMC meeting, but a hot CPI would make
him consider a rate hike.
This week is all about the US CPI data.
Unless, we get some surprising breakthrough in US-Iran relations, the price
action will likely remain mostly rangebound or a bit positive for the greenback
as traders at some point might start hedging into the CPI release.
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.
EUR:
On the EUR side, the ECB is
widely expected to hike interest rates by 25 bps at the upcoming meeting, 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 44 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, as that’s
where we are seeing more volatility in expectations.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDis consolidating above the support
zone around the 1.1560 level. If we get another pullback into the support, we
can expect the buyers to step in with a defined risk below the support to keep
targeting the 1.18 handle. The sellers, on the other hand, will want to see the
price breaking lower to increase the bearish bets into the major 1.14 support
next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price action has been mostly rangebound after the hawkish Warsh speech
and we got a couple of spikes due to Fed’s Waller comments and the strong NFP
report. The 1.1660 level might therefore act as resistance and define the
1.1560-1.1660 range. The buyers will want to see the price breaking above the
resistance to pile in for a rally into the 1.18 handle. The sellers, on the
other hand, will look for a break below the support to position for a drop into
the 1.14 support next.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the choppy price action will likely persist until
the US CPI release. The red lines define the average daily range for today.
UPCOMING CATALYSTS
On Thursday, we get the
US PPI report and the US Jobless Claims figures. On Friday, we conclude the
week with the US CPI report.
This article was written by Giuseppe Dellamotta at investinglive.com.