Fundamental
Overview
The USD has been rallying
steadily against most major currencies in the recent couple of weeks, although
the catalyst behind the move has been unclear. A good argument has been that
most of the moves we’ve been seeing were driven by deleveraging from
strengthening Yen.
Basically, the squeeze on
the carry trades impacted all the other markets. Given the magnitude of the
recent appreciation in the Yen and the correlation with many other markets, it
looks like this could have been the reason indeed. It will be interesting to
see how things evolve in the next days now that the BoJ decision is in the
rear-view mirror and if this correlation fades.
From the monetary policy
perspective, nothing has changed as the market continues to expect at least two
rate cuts by the end of the year and sees some chances of a back-to-back cut in
November. Today, we will also have the FOMC rate decision where the Fed is
expected to keep rates steady and signal a rate cut in September.
The data continues to
suggest that the US economy remains resilient with inflation slowly falling
back to target. Overall, this should continue to support the soft-landing
narrative and be positive for the general risk sentiment.
The EUR, on the other hand,
has been supported against the US Dollar in the past months mainly because of
the risk-on sentiment, although the recent events with the Yen boosted the US
Dollar against many major currencies.
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 today’s CPI came in higher than expected, it
will be the data in August that will decide if they will proceed with a cut in
September or not.
EURUSD Technical
Analysis – Daily Timeframe
On the daily chart, we can
see that EURUSD is consolidating around the 1.0812 support. This is where we can expect the buyers to
step in with a defined risk below the level to position for a rally into the
1.09 handle. The sellers, on the other hand, will want to see the price
breaking lower to increase the bearish bets into the 1.0727 level next.
EURUSD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we have a minor downward trendline defining the current bearish
momentum. We can expect the sellers to lean on it with a defined risk above it
to position for a break below the 1.0812 support with a better risk to reward
setup. The buyers, on the other hand, will want to see the price breaking
higher to gain some 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 we have also the 61.8% Fibonacci retracement level standing around the trendline.
That’s where the sellers will look for a rejection and a drop into new lows,
while the buyers will look for a breakout to the upside. The red lines define
the average daily range for today.
Upcoming
Catalysts
Today we have the US ADP, the US Employment Cost Index and the FOMC Policy
Decision. Tomorrow, we get the latest US Jobless Claims figures and the US ISM
Manufacturing PMI. Finally, on Friday, we conclude the week with the US NFP
report.
This article was written by Giuseppe Dellamotta at www.forexlive.com.
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