USD:
The US dollar has recently
come under some pressure as Treasury yields dropped significantly following the
higher than expected US inflation data last week.
The reaction might
seem illogical as higher inflation should lead to higher interest rates, but
the market might be starting to worry about growth.
If economic
activity deteriorates, the Fed might be forced to keep a hawkish bias due to
persistent inflationary pressures. This could put further pressure on economic
growth and eventually require rate cuts.
In fact, further
out the curve, we saw a slightly dovish repricing in interest rates
expectations as the total expected tightening by the end of 2027 fell from 80
bps to 70 bps despite hot inflation and no changes on the geopolitical side.
If the market’s
focus shifted to growth concerns, then the US Flash PMIs on Friday will be a
key test. Strong data could quell those fears and give the US dollar a boost. A
soft report, on the other hand, will likely increase growth concerns and put
further pressure on long-term Treasury yields and the greenback.
EUR:
On the EUR side, the
probabilities of an ECB rate hike in October dropped sharply following the bond
market woes and the widening of the French-German spread to the highest levels
since the European debt crisis.
Traders still expect the
ECB to deliver another rate hike in December, with an 87% chance priced in, as elevated
energy prices continue to pose upside inflation risks. Further out the curve, the
market sees two more rate hikes next year before rate cuts coming in 2028.
The euro will likely remain
sensitive to developments in the bond market, particularly the French-German
spread. Tomorrow, we have a key budget vote in France. The National Assembly is
scheduled to hold a formal vote on the first part of the budget bill, covering
government revenues, after parliamentary questions. The full budget vote is
scheduled for November 17.
Tomorrow’s vote matters as
a test of the government’s ability to deliver fiscal consolidation. A smooth
passage would offer some relief and give the euro a boost, while a rejection or
major concessions that weaken the deficit-reduction plan could put further
pressure on French bonds and the euro.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDhas been forming a bottom
recently, although downside risks remain. If we get another push to the
downside, we can expect the buyers to step in around the 1.1067 level, with a
defined risk below it, to position for a correction into the downward trendline
around the 1.15 handle. The sellers, on the other hand, will look for a break
lower to increase the bearish bets into the 1.08 handle next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we
have a strong resistance zone around the 1.1275 level where the price got
rejected from several times in the past couple of weeks. If we get another push
into the resistance, we can expect the sellers to step in, with a defined risk above
the resistance, to position for a drop into new lows, with the 1.1067 as the
first target. The buyers, on the other hand, will look for a break higher to
pile in for a rally 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 current pullback from the resistance.
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
look for a break higher to start positioning for a break above the resistance. The
red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have a key budget
vote in France. On Thursday, we get the latest US Jobless Claims figures. On
Friday, we conclude the week with the Eurozone and US Flash PMIs.
This article was written by Giuseppe Dellamotta at investinglive.com.