Fundamental Overview
The USD has been rallying steadily against most major currencies in the recent couple of weeks, although the catalyst behind the move has been unclear. A good argument has been that most of the moves we’ve been seeing were driven by deleveraging from strengthening Yen.
Basically, the squeeze on the carry trades impacted all the other markets. Given the magnitude of the recent appreciation in the Yen and the correlation with many other markets, it looks like this could have been the reason indeed. It will be interesting to see how things evolve in the next days now that the BoJ decision is in the rear-view mirror and if this correlation fades.
From the monetary policy perspective, nothing has changed as the market continues to expect at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November. Today, we will also have the FOMC rate decision where the Fed is expected to keep rates steady and signal a rate cut in September.
The data continues to suggest that the US economy remains resilient with inflation slowly falling back to target. Overall, this should continue to support the soft-landing narrative and be positive for the general risk sentiment.
The EUR, on the other hand, has been supported against the US Dollar in the past months mainly because of the risk-on sentiment, although the recent events with the Yen boosted the US Dollar against many major currencies.
On the monetary policy front, the ECB members continue to repeat that they will wait for the data throughout the summer before deciding on a rate cut in September, so even if today’s CPI came in higher than expected, it will be the data in August that will decide if they will proceed with a cut in September or not.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD is consolidating around the 1.0812 support. This is where we can expect the buyers to step in with a defined risk below the level to position for a rally into the 1.09 handle. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 1.0727 level next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor downward trendline defining the current bearish momentum. We can expect the sellers to lean on it with a defined risk above it to position for a break below the 1.0812 support with a better risk to reward setup. The buyers, on the other hand, will want to see the price breaking higher to gain some more conviction and increase the bullish bets into the 1.09 handle.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have also the 61.8% Fibonacci retracement level standing around the trendline. That’s where the sellers will look for a rejection and a drop into new lows, while the buyers will look for a breakout to the upside. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US ADP, the US Employment Cost Index and the FOMC Policy Decision. Tomorrow, we get the latest US Jobless Claims figures and the US ISM Manufacturing PMI. Finally, on Friday, we conclude the week with the US NFP report.
