Fundamental
Overview
The USD has been stronger
this week, but the tailwinds have been coming from outside the US. In fact, the
greenback’s strength has been coming mostly from USDJPY flows and the weakness
from other currencies like the EUR with the French political uncertainty and
the NZD with the RBNZ’s 50 bps cut.
Domestically, nothing has
changed for the US dollar as the US government shutdown continues to delay many
key US economic reports. The dollar “repricing trade” needs strong US data to
keep going, especially on the labour market side, so any hiccup on that front
is likely to keep weighing on the greenback.
The BLS announced yesterday
that it will release the US CPI report despite the shutdown, but it will likely
be postponed from the original date. In case we get hot data, we will likely
see a hawkish repricing in interest rates expectations with the December cut
being priced out. Conversely, a soft report shouldn’t change much in terms of
pricing, but it will likely weigh on the greenback anyway due to recent
positioning.
On the EUR side, nothing
has changed in the meantime. The ECB left interest rates unchanged at the last
meeting as widely expected with limited forward guidance other than the usual
data-dependent approach. President Lagarde made it clear that the central bank finished
cutting rates after she said that growth risks are balanced and the
disinflationary process was over. The ECB is not expected to adjust rates for a
long time unless we get significant deviation from their inflation target.
We got some weakness in the
euro at the start of the week due to the resignation of French PM Lecornu but
that is now old news as President Macron is expected to name a new prime
minister in the next 48 hours as a majority of lawmakers is against holding a
snap parliamentary election.
EURUSD Technical
Analysis – Daily Timeframe
EURUSD daily
On the daily chart, we can
see that EURUSD broke below a key support zone yesterday despite the lack of
catalysts. The next target for the sellers should be the 1.14 handle as there
are no clear support levels before that. The buyers, on the other hand, will
want to see the price rising back above the broken support to invalidate the
breakout and target a pullback into the major downward trendline around the
1.1680 level.
EURUSD Technical
Analysis – 4 hour Timeframe
EURUSD 4 hour
On the 4 hour chart, we can
that we have a minor downward trendline defining the bearish momentum on this
timeframe. The sellers will likely lean on the trendline with a defined risk
above it to keep pushing into new lows. The buyers, on the other hand, will
look for a break higher to pile in for a rally into the major trendline.
EURUSD Technical
Analysis – 1 hour Timeframe
EURUSD 1 hour
On the 1 hour chart, we can see that we have a minor upward trendline
defining the current pullback into the downward trendline. The buyers will
likely lean on the trendline to keep pushing into new highs, while the sellers
will look for a break lower to increase the bearish bets into new lows. The red
lines define average daily range for today.
Upcoming
Catalysts
Today we conclude the week with the University of Michigan
Consumer Sentiment report.
