US:
- The Fed left interest rates unchanged as expected at the last meeting.
- The macroeconomic projections were revised higher as the economy showed much stronger resilience than expected and the Dot Plot showed that the majority of members still expects another rate hike by the end of the year with less rate cuts in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully.
- The latest US Core PCE came in line with expectations with disinflation continuing steady.
- The labour market remains fairly solid as seen last week with another strong beat in Jobless Claims and the NFP report.
- The ISM Manufacturing PMI beat expectations while the ISM Services PMI came in line with forecasts in another sign that the US economy remains resilient.
- The market doesn’t expect the Fed to hike anymore.
EU:
- The ECB hiked by 25 bps at the last meeting and added a line in the statement that hinted to the end of the tightening cycle.
- President Lagarde didn’t push back against the idea of them having reached already the terminal rate and highlighted the slowdown in Eurozone economy.
- The Eurozone CPI recently missed across the board supporting the ECB’s stance.
- The labour market remains very tight with the unemployment rate hovering at record low levels.
- Overall, the economic data lately has been showing signs of fast deterioration in the economy.
- Most ECB members are leaning towards keeping rates higher for longer now.
- The market doesn’t expect the ECB to hike anymore.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the EURUSD pair couldn’t sustain the bearish momentum below the key 1.05 level and started to correct higher into a key resistance zone. In fact, around the 1.0620 level we can find the confluence of the downward trendline, the 38.2% Fibonacci retracement level and the red 21 moving average. That’s where the sellers are likely to pile in with a defined risk above the trendline to position for another selloff into the 1.02 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a divergence with the MACD right below the key 1.05 level. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the target for the pullback should be the downward trendline around the 1.06 handle, but if the price breaks higher, the buyers will have a confirmation of a reversal and will start to target new higher highs. In case the bearish trend resumes before the price hit the trendline, the sellers are likely to pile in on a break below the counter-trendline around the 1.0515 level.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see the short-term price action with a couple of key levels for the buyers. In fact, we might see them stepping in around the 1.0558 level, where we can find the previous resistance turned support and the red 21 moving average to target a rally into the 1.0620 resistance. More conservative buyers may want to wait for the price to take out the recent high around the 1.0584 level before joining the rally. Alternatively, the buyers can wait for the price to come into the counter-trendline where they will have a much better risk to reward setup.
Upcoming Events
This week the market is likely to focus on the CPI report as that’s what might change the expectations around the next FOMC rate decision. Tomorrow, we will see the US PPI data and later in the day the FOMC Meeting Minutes. On Thursday, it will be the time for the US CPI report, and at the same time we will also get the latest Jobless Claims figures. On Friday we conclude the week with the University of Michigan Consumer Sentiment report.