US:
- The Fed hiked by 25 bps as expected and kept everything unchanged.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- The US economic data keeps on surprising to the upside, but inflation expectations and CPI readings continue to show disinflation with the last two Core CPI M/M figures coming in at 0.16%.
- The US PMIs missed expectations across the board last week, while the US Jobless Claims remained solid.
- Fed Chair Powell’s speech at the Jackson Hole Symposium was mostly in line with what he said previously but he stressed on the need to be careful going forward and that continued strength in the labour market may require further rate hikes.
- At the moment, the market doesn’t expect another hike from the Fed, but the next NFP and CPI data will be crucial to confirm or change this view.
EU:
- The ECB hiked by 25 bps and changed a line in the statement that leant more on the dovish side.
- President Lagarde didn’t hint to what we can expect next and, in line with the Fed, just reaffirmed their data dependency and kept all the options on the table.
- The data for the Eurozone has been consistently missing expectations, but the recent inflation and employment reports remained strong.
- The Eurozone PMIs missed expectations across the board with the Services sector plunging in contraction.
- President Lagarde at the Jackson Hole Symposium didn’t signal much but she wasn’t as dovish as the market expected her to be.
- The market expects the ECB to hike by 25 bps at the September meeting but that will likely depend on the upcoming CPI report.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD has bounced on the bottom trendline of the major rising wedge pattern and it’s now testing the previous support now turned resistance. The bearish trend remains intact as the price keeps printing lower lows and lower highs and the moving averages are crossed to the downside. From a risk management perspective, the sellers may want to wait for the price to pull back into the downward trendline where they will also find the confluence with the red 21 moving average. The buyers, on the other hand, will need the price to break through the trendline to switch the bias from bearish to bullish and target new higher highs.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we’ve been diverging with the MACD for a while as the price has been approaching the bottom trendline of the wedge. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In fact, this is a key spot for the pair as a break lower would open the door for a fall into the 1.05 handle. The price is now getting rejected from the previous support now turned resistance and the black trendline as the sellers are positioning for a break lower. If the price turns around and breaks above the 1.0832 level, we can expect a quick rally into the major trendline where we have also the 38.2% Fibonacci retracement level and the previously mentioned daily 21 moving average.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the rejection from the resistance zone around the 1.0832 level. If the price breaks above the resistance, the buyers are likely to pile in to position for a breakout of the major trendline. The sellers, on the other hand, will want to see the price to continue lower and break below the bottom trendline of the wedge to pile in even more aggressively and target the 1.05 handle.
Upcoming Events
This week is an important one given that we will see many key labour market data for the US, including the NFP, before the next FOMC meeting. We will also get the latest Eurozone CPI data which is likely to decide whether the ECB is going to hike in September or pause. Today, we have the US Consumer Confidence and the US Job Openings reports. Tomorrow, we have the US ADP report. Moving on to Thursday, we will have the Eurozone CPI, the US Jobless Claims and the US PCE data. Finally, we conclude the week with the US NFP and the ISM Manufacturing PMI on Friday. Although the Fed keeps all the options on the table, it’s also leaning more towards a pause in September, so we will need strong data to make the market to expect a hike at the upcoming meeting. Likewise for the ECB, a strong CPI report will seal the rate hike at the September meeting.
