FundamentalOverview
The USD got a boostyesterday following an ugly US ISM Manufacturing PMI as the markets went into risk-off. Overall, we had goldilocks data releasesuntil now with an economy that’s been slowing but still growing. So, one badreport might not be a gamechanger, but the markets are increasingly sensitiveto bad news in this part of the cycle.
On the monetary policyfront, we had the FOMC rate decision on Wednesday and as expected it wasa dovish one. Fed Chair Powell hinted to a September rate cut and didn’t evenclose the door for “several” rate cuts before the end of the year. The markethas now fully priced in three rate cuts by the end of the year and continues toraise 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 andgeneral risk-off sentiment. On the monetary policy front, the ECB memberscontinue to repeat that they will wait for the data throughout the summerbefore deciding on a rate cut in September, so even if thisweek’s CPI came in higher than expected, they will also look at the data inAugust to decide whether or not to cut in September.
The market is seeing 60 bpsof easing before year-end and 77% probability of a rate cut in September. Thishas increased recently because of the US recession fears in the markets.
EURUSD TechnicalAnalysis – Daily Timeframe
On the daily chart, we cansee that EURUSD broke through the 1.0812 support yesterday and came back to retest it thismorning. This is where we can expect the sellers to step in with a defined riskabove 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 levelto pile in and position for a rally into the 1.09 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 1 hour chart, we cansee that the price is now testing the trendline. What happens here will likelybe key as a breakout to the upside might trigger a strong rally, while a strongrejection could see a selloff into the 1.0727 support. Beware of the US NFPreport today as we can get spikes on either side. The red lines define the average daily range for today.
UpcomingCatalysts
Today we conclude the week with the US NFP report where the consensus expects175K jobs added in July and the Unemployment Rate to remain unchanged at4.1%.
