US:
- The Fed left interest rates unchanged as expected at the last meeting.
- The macroeconomic projections were revised higher as the economy showed much stronger resilience than expected and the Dot Plot showed that the majority of members still expects another rate hike by the end of the year with less rate cuts in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully as they are trying to find the optimal level of rates. Powell also added that the soft landing is not the base case at the moment, although they are aiming for it.
- The latest US Core PCE came in line with expectations with disinflation continuing steady.
- The labour market displayed signs of softening although it remains fairly solid as seen also last week with a strong beat in Jobless Claims and this week with the beat in Job Openings.
- The ISM Manufacturing PMI beat expectations while the ISM Services PMI came in line with forecasts in another sign that the US economy remains resilient.
- The miss in the ADP report yesterday led to some USD weakness which might continue if the data in the next couple of days misses as well.
- The market doesn’t expect the Fed to hike again at the moment.
EU:
- The ECB hiked by 25 bps at the last meeting and added a line in the statement that hinted to the end of the tightening cycle.
- President Lagarde didn’t push back against the idea of them having reached already the terminal rate and highlighted the slowdown in Eurozone economy.
- The Eurozone CPI missed across the board last week supporting the ECB’s stance.
- The labour market remains very tight with the unemployment rate hovering at record low levels.
- Overall, the economic data lately has been showing signs of fast deterioration in the economy.
- Most ECB members are leaning towards keeping rates higher for longer now.
- The market doesn’t expect the ECB to hike anymore.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the EURUSD pair has pulled back recently with the miss in the ADP report yesterday giving it a bit of relief after a series of strong US data. From a risk management perspective, the sellers would have a much better risk to reward setup shorting from the resistance around the 1.0620 level where we have the confluence with the trendline, the 38.2% Fibonacci retracement level and the red 21 moving average. The buyers, on the other hand, will need the price to break above the trendline to change the trend around.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a divergence with the MACD right around the key 1.05 support. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we might see a pullback into the previously mentioned 1.0620 resistance zone, so the buyers are likely to pile around here to position for a rally into the resistance.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the market structure on this timeframe is bullish as the price has made a new higher high and the moving averages have crossed to the upside. The buyers should lean on the support around the 1.0495 level with a defined risk below it to target the 1.0620 level. More conservative buyers may want to wait for the price to break above the recent high at 1.0532 before joining the rally. The sellers, on the other hand, will want to see the price breaking below the 1.0495 support to pile in again and extend the drop to new lows.
Upcoming Events
Today we have the Jobless Claims report, which continues to show a solid labour market and given the reaction to the miss in the ADP yesterday, we can expect a rally in case of a miss and a drop in case of a beat. Tomorrow, it will be the time for the NFP report which is the only one the Fed will see before its next rate decision.
