USD
- The Fed left interest rates unchanged as expected with a shift in the statement that indicated the end of the tightening cycle.
- The Summary of Economic Projections showed a downward revision to Growth and Core PCE in 2024 while the Unemployment Rate was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts in 2024 compared to just two in the last projection.
- Fed Chair Powell didn't push back against the strong dovish pricing and even said that they are focused on not making the mistake of holding rates high for too long, which implies a rate cut coming soon.
- The US CPI last week came in line with expectations with the disinflationary progress continuing steady. This was also confirmed by the US PPI the day after where the data missed estimates.
- The labour market has been showing signs of weakening lately but we got some strong releases recently with the US Jobless Claims and the NFP coming in strongly.
- The US Retail Sales last week beat expectations across the board as consumer spending continues to hold.
- The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- The market expects the Fed to start cutting rates in Q1 2024.
EUR
- The ECB left interest rates unchanged as expected maintaining the usual data dependent language.
- President Lagarde highlighted once again that the risks to the economy are skewed to the downside and that they did not discuss rate cuts, which was a pushback against the aggressive market’s rate cut pricing.
- The recent Eurozone CPI missed expectations across the board, further reaffirming that the ECB is done for the cycle with rate cuts likely coming soon.
- The labour market remains historically tight with the unemployment rate hovering at cycle lows.
- The Eurozone PMIs missed expectations across the board with both the Manufacturing and Services sectors falling further into contraction.
- The ECB members continue to repeat that they will keep rates high for as long as necessary and that the market’s expectations are too aggressive.
- The market expects the ECB to start cutting rates in Q1 2024.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD bounced on the 50% Fibonacci retracement level of the entire rally from the October lows and surged into the 1.10 handle following the surprisingly dovish FOMC decision and the less dovish than expected ECB announcement. The resistance formed by the 1.10 handle and the 61.8% Fibonacci retracement level of the entire fall since the 1.13 level continues to be a tough nut to crack for the buyers.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pair reversed some of the gains last Friday. The buyers leant on the red 21 moving average where they had the confluence with the 38.2% Fibonacci retracement level and the 1.09 handle. The price is now consolidating as the market awaits some catalyst to push it in either direction but given that we are now basically in the Christmas period, the pair might just keep on ranging around these levels.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has been trading inside an ascending triangle. The price broke to the upside of the pattern and what follows is generally a sustained move in the direction of the breakout. The buyers are likely to keep piling in to target a rally into the 1.10 handle. The sellers, on the other hand, will want to see the price reversing and breaking below the minor trendline of the triangle to position for another bearish impulse.
Upcoming Events
This week is a bit empty on the data front as we head into the Christmas holidays. On Wednesday, we have the US Consumer Confidence report. On Thursday, we get the latest US Jobless Claims data, while on Friday we conclude the week with the US PCE report.
