Fundamental
Overview
The bullish momentum in the
USD is starting to fade as Treasury yields continue to fall. We had two
possible catalysts yesterday.
The first one was the much
weaker than expected US NFIB Index which dropped to a 3 month low.
There wasn’t an immediate reaction in the markets on the release, but things
started to move as the American session began.
The second one was a
comment from BoC’s Macklem where he said that bigger cuts are
possible if the economy and CPI were weaker. There’s generally a groupthink
with central banks, so the market might have projected that to the Fed’s
decision next week.
The probabilities for the
Fed to cut by 50 bps at the upcoming meeting increased to 35% and a soft US CPI
report today might get us back to a 50/50 chance between 25 and 50 bps cut. For
the ECB, the market sees a 100% probability of a 25 bps cut tomorrow and a
total of 65 bps of easing by year-end.
The ECB might sound a bit
more neutral than the Fed tomorrow, so the market might position long EURUSD into
the event, especially if the US CPI comes out soft.
EURUSD Technical
Analysis – Daily Timeframe
On the daily chart, we can
see that EURUSD couldn’t break above the 1.1136 level following the US NFP
report and eventually dropped into the 1.10 handle. From a risk management
perspective, the buyers will have a better risk to reward setup around the trendline.
The sellers, on the other hand, will want to see the price breaking below the
trendline to increase the bearish bets into the 1.08 handle next.
EURUSD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we have a support
zone around the 1.1015 level. This is where we can expect the buyers to step in
with a defined risk below the support to position for a rally into the 1.1136
level. The sellers, on the other hand, will want to see the price breaking
lower to increase the bearish bets into the trendline.
EURUSD Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have a minor resistance around the 1.1052 level. A break above this
level should see the bullish momentum increasing. On a soft US CPI, the market
might position long into the ECB decision. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we get the US CPI report. Tomorrow, we have the ECB rate decision, the
US Jobless Claims figures and the US PPI data. On Friday, we conclude the week
with the University of Michigan Consumer Sentiment report.
This article was written by Giuseppe Dellamotta at www.forexlive.com.
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