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.
- The latest US Core PCE came in line with expectations with disinflation continuing steady.
- The labour market remains fairly solid as seen last week with another strong beat in Jobless Claims and the NFP report.
- 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 US PPI data yesterday surprised to the upside, but it was mainly energy driven and the market brushed it aside.
- The Fed members continue to cite elevated long-term yields as a reason to proceed carefully and pause in November as well.
- The market doesn’t expect the Fed to hike anymore.
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 recently missed across the board 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 now reached a key resistance level where we have the confluence of the trendline and the 38.2% Fibonacci retracement level. This is where we can expect the sellers to step in with more conviction and a better risk to reward setup to position for another selloff into new lows. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and reverse the downtrend.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the divergence with the MACD right around the key 1.05 support signalled the loss of the bearish momentum and the bounce back to the highs. The trend on this timeframe is clearly bullish as the price continues to print higher highs and higher lows with the moving averages being crossed to the upside. More conservative sellers might want to wait for the price to break below the counter-trendline around the 1.0590 level before joining an eventual selloff.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence with the MACD right at the key resistance level. The price action has also formed what looks like a rising wedge, which is a reversal pattern and increases the odds of a selloff from the current levels. Failed patterns are also significant, if not more significant, so if we see a strong rally from here it could signal that the trend has turned around. The economic data today will be crucial for the next direction.
Upcoming Events
Today we will get the most important report of the week, that is the US CPI report. The market is likely to focus on the core measures and if the figures surprise to the upside the US Dollar is likely to appreciate as the Fed might raise rates again in November and the 2024 rate cuts could be repriced again. If the data surprises to the downside though, we could see the US Dollar weakening as the market could bring rate cuts forward and the fall in Treasury yields will weigh on the greenback. At the same time, we will also see the latest US Jobless Claims data which is an important labour market report. The US Dollar is likely to appreciate both in case the data is much stronger than expected due to a more hawkish pricing and much weaker than expected figures as the risk sentiment might deteriorate due to recession fears. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment report.
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