Fundamental Overview
The USD yesterday came under renewed pressure following the beat in the US ISM Services PMI where the data showed that the last month drop was just a blip and overall we have a resilient economy with lower inflationary pressures. The data continues to reinforce the narrative that the next move is more likely to be a rate cut, and that inflation is likely to keep coming back to target. This could keep weighing on the greenback as the positive risk sentiment due to the pickup in global growth is generally a headwind.
The EUR, on the other hand, has been gaining ground against the USD mainly because of the Dollar weakness amid the general risk-on sentiment regime. Moreover, the recent data from the Eurozone has been generally good with a pickup in the PMIs, high wage growth and strong labour market. Today, the ECB is expected to cut rates by 25 bps but the focus will be on their forward guidance, although I don’t expect them to pre-commit to anything and just stress data dependency.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the price action in the EURUSD pair has been mostly rangebound between the 1.08 support and the 1.09 resistance as the risk sentiment has been mixed but with a bullish tilt.
The buyers will want to see the price breaking higher to pile in for a rally into the 1.10 handle. The sellers, on the other hand, will likely keep on leaning on the resistance with a defined risk above it to position for a drop back into the 1.08 support.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the rangebound price action with the multiple failed tries to break above the resistance. The overall trend remains bullish, and the positive risk sentiment should support the Euro. The risk is that the ECB sounds more dovish than expected, in which case we could see a quick drop into the 1.08 support where the buyers will likely step in to buy the dip with a better risk to reward setup.
The NFP tomorrow is also a risk as a hot report could give the USD a boost in the short term but without hot wage growth figures, the dip buyers should still come up on top. Conversely, very weak numbers might depress the risk sentiment and lead to safe haven flows and support the greenback.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a strong level around 1.0860 where the price reacted from several times in the past days. If the price were to fall below this level on the ECB decision, we might see the algos exacerbating the move and take the pair into the 1.08 support zone.
That’s where we have also the lower limit of the average daily range, so we can expect the buyers to buy the dip. Conversely, a rally might extend to the 1.0920 level but without a very hawkish language, we should see the pair eventually coming back toward the 1.0880 region as the market will look forward to the NFP report next.
Upcoming Catalysts
Today we have the ECB Policy Decision and the US Jobless Claims. Tomorrow, we conclude the week with the US NFP report.
