FUNDAMENTAL
OVERVIEW
USD:
The US dollar has been under some pressure since last week as the soft US
inflation data led to a dovish repricing in Fed interest rate expectations.
There’s now just a 15% chance of a rate hike in July, but the probabilities for
a September move remain above 50% (currently 61%).
The US-Iran crisis in the background is keeping inflation risks skewed to
the upside, so the downside in the greenback should remain limited without a
clear de-escalation. We can expect the rangebound price action to persist with
this backdrop.
Axios reported today that Trump is nearing a decision between a 10-day
ceasefire to reopen the Strait of Hormuz and a full-scale war with Israel
against Iran. It goes without saying that a ceasefire would be negative for the
US dollar, while a full-scale war would push the greenback into new highs.
EUR:
On the EUR side, the ECB is
expected to hold interest rates steady this week maintaining the data-dependent
and meeting-by-meeting approach. The central bank will likely lean on the hawkish
side given the renewed US-Iran conflict but refrain from pre-committing to a
rate hike in September.
The market is expecting a
total of 43 bps of tightening by year-end with a 75% probability of the next
rate hike coming in September. Traders will mainly focus on Lagarde’s press
conference. If she sounds more dovish compared to market expectations, the euro
will likely come under pressure. Conversely, a more hawkish tone might give the
single currency a short-term boost.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDrejected the major trendline
as the sellers stepped in to position for a drop into new lows. The price is
now bouncing from the key support zone around the 1.14 handle. The price action
will likely compress further between the support and the trendline, with
traders waiting for a breakout on either side for the next sustained trend.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we
have an upward trendline defining the recent correction. The buyers will likely
continue to lean on the trendline with a defined risk below it to keep targeting
a break above the major trendline. The sellers, on the other hand, will want to
see the price breaking below the trendline and the support to pile in for a
drop into the 1.10 handle next.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, we have a minor downward trendline defining the recent
bearish momentum. We can expect the sellers to lean on the trendline to keep pushing
into new lows, while the buyers will look for a break to extend the rally into
the major trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
On Thursday,
we have the ECB policy decision and the US Jobless Claims data, while on Friday
we conclude the week with the Eurozone and US PMIs. The focus remains on
US-Iran headlines.
This article was written by Giuseppe Dellamotta at investinglive.com.