FUNDAMENTAL
OVERVIEW
USD:
The US dollar has
been under some pressure at the start of last week as the sharp decline in oil prices on expectations of a de-escalation and an earlier
end to the conflict increased going into the UN General Assembly.
However, those expectations faded after the UN
General Assembly, where Trump reiterated that the US would make a deal with
Iran after the November elections. His remarks reduced optimism over a
near-term resolution and contributed to a renewed rise in oil prices.
Moreover, on Wednesday we got very strong US Flash PMIsthat triggered another hawkish repricing in interest rate
expectations, sending Treasury yields to new highs and the odds for a rate hike
in October to 65%.
Going into the weekend, the hopes for a US-Iran
deal returned after Iran sent a proposal to reopen the Strait of Hormuz within
seven days on certain conditions. Unfortunately, Trump
rejected the proposal on Saturday and told reporters that he expected to resume
bombing Iran after the midterms.
Unsurprisingly, the US dollar started the week on
a good note as risk-off sentiment dominated the Asian session, with crude oil
and Treasury yields erasing some of Friday’s losses.
The focus will remain mostly on the Middle East
and the Fed. A breakthrough would be negative for the US dollar in the
short-term as the aggressive rate hike bets will likely get pared back. A
prolonged stalemate or even a re-escalation, on the other hand, will likely
continue to support the greenback into new highs.
EUR:
On the EUR side, not much
has changed. As a reminder, the ECB delivered a 25 bps rate hike at
the last meeting,
taking the deposit rate to 2.50% as widely expected. The more hawkish takeaway
came from the inflation outlook and the ECB’s growing concern that the Middle
East-driven energy shock could keep price pressures elevated for longer. The
ECB now sees headline inflation at 3.0% in 2026 and 2.5% in 2027, with both the
2027 and 2028 inflation forecasts revised higher.
The decision also came with
a stronger growth assessment, with the ECB upgrading its 2026 and 2027 growth
forecasts as the euro-area economy has proved more resilient than expected.
This gives policymakers somewhat more room to keep tightening despite the
inflation shock.
The most important
development came after the decision. ECB sources indicated that
policymakers are already discussing another hike as early as the October meeting if energy prices remain
elevated and inflation risks continue to broaden. Lagarde herself did not
pre-commit to October though, stressing a data-dependent and meeting-by-meeting
approach. Therefore, traders will keep focusing on the economic data and the
Middle East situation.
The Flash PMIs released
last week showed a resilient economy which gives the ECB room to tighten further
if needed. On Friday, we get the Eurozone Flash CPI which could decide whether
the central bank hikes again in October. At the moment, there is roughly a 38%
chance of a rate hike.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDbroke below the key support
zone around the 1.1400 handle. This has opened the door for a move into new lows.
The sellers will likely continue to step in around these levels with a defined
risk above the broken support to target the 1.1100 handle. The buyers, on the
other hand, will want to see the price rising back above the broken support to position
for a correction into the downward trendline around the 1.1550 level.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we
have a downward trendline that’s been defining the bearish momentum. The
sellers will likely continue to lean on the trendline with a defined risk above
it to keep pushing into new lows. The buyers, on the other hand, will want to
see the price breaking above the trendline and the broken support to open the
door for a correction into the downward trendline, with the 1.15 handle as the
first target.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here but we can see that the price broke below the upward
counter-trendline, which generally signals new lows to come. The sellers will
likely pile in here with a defined risk above the downward trendline to keep
pushing into new lows, while the buyers will wait for the price to rise above
the trendline to start looking for new highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow, we get the US Consumer
Confidence report and the US Job Openings data. On Wednesday, we have the US
ADP and the US PCE price index. On Thursday, we get the US ISM Manufacturing
PMI and the latest US Jobless Claims figures. On Friday, we conclude the week
with the Eurozone Flash CPI and the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.