Fundamental Overview
The USD got a boost yesterday following an ugly US ISM Manufacturing PMI as the markets went into risk-off. Overall, we had goldilocks data releases until now with an economy that’s been slowing but still growing. So, one bad report might not be a gamechanger, but the markets are increasingly sensitive to bad news in this part of the cycle.
On the monetary policy front, we had the FOMC rate decision on Wednesday and as expected it was a dovish one. Fed Chair Powell hinted to a September rate cut and didn’t even close the door for “several” rate cuts before the end of the year. The market has now fully priced in three rate cuts by the end of the year and continues to raise the chances of a 50 bps cut in September.
The EUR, on the other hand, has been on a steady fall as we got the unwinding of the Yen carry trades and general risk-off sentiment. 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 this week’s CPI came in higher than expected, they will also look at the data in August to decide whether or not to cut in September.
The market is seeing 60 bps of easing before year-end and 77% probability of a rate cut in September. This has increased recently because of the US recession fears in the markets.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD broke through the 1.0812 support yesterday and came back to retest it this morning. This is where we can expect the sellers to step in with a defined risk above the level to position for a drop into the 1.0727 level next. The buyers, on the other hand, will want to see the price breaking decisively above the level to pile in and position for a rally into the 1.09 handle.
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 keep leaning on it with a defined risk above it to position for new lows. The buyers, on the other hand, will want to see the price breaking higher to gain 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 the price is now testing the trendline. What happens here will likely be key as a breakout to the upside might trigger a strong rally, while a strong rejection could see a selloff into the 1.0727 support. Beware of the US NFP report today as we can get spikes on either side. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the US NFP report where the consensus expects 175K jobs added in July and the Unemployment Rate to remain unchanged at 4.1%.