FUNDAMENTAL
OVERVIEW
USD:
The US dollar came under some pressure in the final part of last week
following the US NFP report. The data wasn’t bad, but it was enough to trigger
a slightly dovish repricing in interest rate expectations. The chances for a
July hike are now standing at just 24%, while the probabilities for a move in
September dropped to 55%.
As mentioned previously, given the Fed’s focus on inflation, the US CPI
will likely be more important. For now, the US dollar might remain rangebound
until we get to the main event.
This week, we don’t have much on the agenda. We have Fed’s Waller speaking
today, but unless he explicitly endorses rate hikes, the price action should
remain rangebound. The other potential catalyst could be the FOMC meeting
minutes on Wednesday.
This is almost never a market moving report but given the limited forward
guidance from Fed Chair Warsh, traders will want to see if there’s any further
signal in the minutes on the next policy move.
EUR:
On the EUR side, the recent
inflation data showed a welcome easing for the ECB which, coupled with the
quick drop in energy prices to pre-war levels, greatly diminished the urgency
for further tightening. This is also what policymakers have been communicating
via their recent speeches which basically sealed a pause in July (unless
something really bad happens on the US-Iran/Strait of Hormuz side).
The market is still pricing
in a 27% chance of a hike in July but that should now stand much lower. There’s
a total of 25 bps of tightening still priced in by year-end which suggests the
market is expecting at least another rate hike from the ECB. For now, the data
supports a prolonged pause.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
EURUSD – daily
On the daily chart, we can
see that EURUSD is still consolidating near
the key 1.14 support despite the upward spike triggered by the mixed NFP
report. From a risk management perspective, the sellers will have a better risk
to reward setup around the downward trendline to position for a drop into the
1.10 handle next. The buyers, on the other hand, will want to see the price
breaking higher to open the door for a rally into the 1.18 handle.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
EURUSD – 4 hour
On the 4 hour chart, we now
have an upward trendline defining the correction. If we get a pullback into the
trendline, we can expect the buyers to lean on it with a defined risk below it
to keep pushing into new highs. The sellers, on the other hand, will want to see
the price breaking lower to pile in for a drop into new lows.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
EURUSD – 1 hour
On the 1 hour chart, we have a downward counter-trendline defining the
current pullback into the 1.14 support. The sellers will likely continue to
lean on it to keep pushing into new lows, while the buyers will want to see the
price breaking higher to increase the bullish bets into the major downward
trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the US ISM
Services PMI. On Wednesday, we have the FOMC meeting minutes. On Thursday, we
get the latest US Jobless Claims figures.
