US:
- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- Inflation measures since then showed further disinflation.
- The labour market displayed signs of softening although it remains fairly tight.
- Overall, the economic data started to surprise to the downside lately.
- The Fed members are leaning more towards a pause in September.
- Yesterday, we got a big beat in the ISM Services PMI.
- The market pricing now sees a 50/50 chance for a November hike.
EU:
- The ECB hiked by 25 bps and changed a line in the statement that leant more on the dovish side.
- President Lagarde didn’t hint to what we can expect next and, in line with the Fed, just reaffirmed their data dependency and kept all the options on the table.
- Inflation measures did soften a bit but remain uncomfortably high.
- The labour market remains very tight with the unemployment rate stuck at record low levels.
- Overall, the economic data has been showing signs of fast deterioration in the economy pointing to a possible recession in the next 6 months.
- The message from ECB members has been mixed but leaning more towards a pause.
- The market doesn’t expect the ECB to hike at the upcoming meeting.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD recently tried to break out of the downward trendline, but the price got smacked back down soon after leaving behind a fakeout and causing a big selloff that led to the breakout of the bottom trendline. This breakout opened the door for a fall into the 1.0515 level and the sellers are now in firm control.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the fakeout, which is generally a reversal pattern, and the impulses to the downside with the most important levels. The pair is clearly in a downtrend as the price has been printing lower lows and lower highs and the moving averages are crossed to the downside.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a divergence with the MACD with the last leg lower. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we got a pullback into the trendline and the 38.2% Fibonacci retracement level where the sellers piled in with a defined risk above the trendline to position for a fall into the 1.0515 support.
If the price breaks below the recent low, we should see even more selling coming into the market and push the price to new lows. The buyers, on the other hand, will need the price to break above the trendline to invalidate the bearish setup and start targeting new higher highs, but ultimately, they will need the price to break above the major downward trendline around the 1.08 handle to reverse the main downtrend.
Upcoming Events
Today we will have the last important US economic data for this week: the US Jobless Claims report. We saw just yesterday that strong US data is tailwind for the US Dollar as that raises the chances that the Fed might need to do more. So, if we get good data, we should see more USD strength, while bad data should weigh on the greenback in the short term.