Fundamental
Overview
The USD got a boost
yesterday following an ugly US ISM Manufacturing PMI as the markets went into risk-off. Overall, we had goldilocks data releases
until now with an economy that’s been slowing but still growing. So, one bad
report might not be a gamechanger, but the markets are increasingly sensitive
to bad news in this part of the cycle.
On the monetary policy
front, we had the FOMC rate decision on Wednesday and as expected it was
a dovish one. Fed Chair Powell hinted to a September rate cut and didn’t even
close the door for “several” rate cuts before the end of the year. The market
has now fully priced in three rate cuts by the end of the year and continues to
raise the chances of a 50 bps cut in September.
The EUR, on the other hand,
has been on a steady fall as we got the unwinding of the Yen carry trades and
general risk-off sentiment. 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 this
week’s CPI came in higher than expected, they will also look at the data in
August to decide whether or not to cut in September.
The market is seeing 60 bps
of easing before year-end and 77% probability of a rate cut in September. This
has increased recently because of the US recession fears in the markets.
EURUSD Technical
Analysis – Daily Timeframe
On the daily chart, we can
see that EURUSD broke through the 1.0812 support yesterday and came back to retest it this
morning. This is where we can expect the sellers to step in with a defined risk
above the level to position for a drop into the 1.0727 level next. The buyers,
on the other hand, will want to see the price breaking decisively above the level
to pile in and position for a rally into the 1.09 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we have a downward trendline defining the current bearish
momentum. We can expect the sellers to keep leaning on it with a defined risk
above it to position for new lows. The buyers, on the other hand, will want to
see the price breaking higher to gain 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 the price is now testing the trendline. What happens here will likely
be key as a breakout to the upside might trigger a strong rally, while a strong
rejection could see a selloff into the 1.0727 support. Beware of the US NFP
report today as we can get spikes on either side. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we conclude the week with the US NFP report where the consensus expects
175K jobs added in July and the Unemployment Rate to remain unchanged at
4.1%.
This article was written by Giuseppe Dellamotta at www.forexlive.com.
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