Fundamental Overview
The puzzling weakness in the US Dollar following Trump’s victory looks more and more like it was just a “sell the fact” reaction. The greenback is now back in the driving seat, and we might have also seen some pre-positioning in the past couple of days into a potentially hot US CPI report today.
At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.
The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.
The market might have already assigned some premium to a higher than expected print, so there's some risk of a short-term "sell the fact" reaction on a higher than expected number.
It goes without saying that a bigger than expected upside surprise should see the momentum increasing immediately with the US Dollar likely rallying across the board and Treasury yields shooting higher.
On the other hand, a soft print will likely see the US Dollar and Treasury yields falling, although one can argue that it's just going to provide a pullback to go long the US Dollar and short bonds again at even better levels as future conditions will likely see inflation getting stuck above the target or even moving back higher.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD broke through the key support zone around the 1.0777 following the Trump’s victor, retested it and eventually continued lower. We are now testing another key level at 1.06 handle, and this is where the buyers are stepping in with a defined risk below the level to position for a rally back into the 1.0777 level. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 1.05 handle next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a downward trendline defining the current bearish momentum. We can expect the sellers to lean on it to position for the break below the 1.06 handle, while the buyers will look for a break higher to increase the bullish bets into the 1.0777 level.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance zone around the 1.0630 level where we have the trendline for confluence. This is where the sellers are likely to step in with a defined risk above the trendline to position for the break below the 1.06 handle. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 1.0777 level. The red lines define the average daily range for today.
Upcoming Catalysts
Today, we have the US CPI report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US Retail Sales data.
