- The Fed left interest rates unchanged as expected.
- The macroeconomic projections were revised higher as the economy showed much stronger resilience than expected and the Dot Plot showed that the majority of members still expects another rate hike by the end of the year with less rate cuts in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully as they are trying to find the optimal level of rates. Powell also added that the soft landing is not the base case at the moment, although they are aiming for it.
- The US CPI last week came in line with expectations, so the market’s pricing remained roughly the same.
- The labour market displayed signs of softening although it remains fairly solid.
- The market sees basically a 50/50 chance of a hike in November.
- The ECB hiked by 25 bps at the last meeting and added a line in the statement that hinted to the end of the tightening cycle.
- President Lagarde didn’t push back against the idea of them having reached already the terminal rate and highlighted the slowdown in Eurozone economy.
- Inflation measures did soften a bit lately but remain uncomfortably high.
- The labour market remains very tight with the unemployment rate hovering at record low levels.
- Overall, the economic data lately has been showing signs of fast deterioration in the economy pointing to a possible recession in the near future.
- The market doesn’t expect the ECB to hike anymore.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD has sold off into the 1.0635 support again following the FOMC meeting. There are strong buyers at this support as we keep seeing strong rejections. In fact, we can expect the buyers to pile in with a defined risk below the level to target the downward trendline and eventually a breakout. The sellers, on the other hand, will want to see the price to break through the support with conviction to position for a selloff into the 1.05 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we might see a pullback into the downward trendline where we have also the 38.2% Fibonacci retracement level for confluence. The sellers are likely to lean on the trendline with a defined risk above it to target a break below the support. The buyers will need the price to break above the trendline and the 1.0770 level to change the market structure from bearish to bullish.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance around the 1.0670 level as we have the confluence with the red 21 moving average, the previous support turned resistance and the 38.2% Fibonacci retracement level. This is where we can expect some sellers to start piling in with a defined risk above the resistance. If the price breaks through this resistance, then the buyers will target the trendline with more conviction.
The week is drawing to a close, but we still have a couple of key economic releases ahead. Today, the main event will be the US Jobless Claims report as the labour market data remains very important for the Fed and the market. Tomorrow, we will see the latest Eurozone and US PMIs data which is expected to be market moving.