Fundamental Overview
The bullish momentum in the USD is starting to fade as Treasury yields continue to fall. We had two possible catalysts yesterday.
The first one was the much weaker than expected US NFIB Index which dropped to a 3 month low. There wasn’t an immediate reaction in the markets on the release, but things started to move as the American session began.
The second one was a comment from BoC’s Macklem where he said that bigger cuts are possible if the economy and CPI were weaker. There’s generally a groupthink with central banks, so the market might have projected that to the Fed’s decision next week.
The probabilities for the Fed to cut by 50 bps at the upcoming meeting increased to 35% and a soft US CPI report today might get us back to a 50/50 chance between 25 and 50 bps cut. For the ECB, the market sees a 100% probability of a 25 bps cut tomorrow and a total of 65 bps of easing by year-end.
The ECB might sound a bit more neutral than the Fed tomorrow, so the market might position long EURUSD into the event, especially if the US CPI comes out soft.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD couldn’t break above the 1.1136 level following the US NFP report and eventually dropped into the 1.10 handle. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline. The sellers, on the other hand, will want to see the price breaking below the trendline to increase the bearish bets into the 1.08 handle next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a support zone around the 1.1015 level. This is where we can expect the buyers to step in with a defined risk below the support to position for a rally into the 1.1136 level. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the trendline.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance around the 1.1052 level. A break above this level should see the bullish momentum increasing. On a soft US CPI, the market might position long into the ECB decision. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the US CPI report. Tomorrow, we have the ECB rate decision, the US Jobless Claims figures and the US PPI data. On Friday, we conclude the week with the University of Michigan Consumer Sentiment report.