- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- Inflation measures since then showed further disinflation.
- The labour market displayed signs of softening although it remains fairly solid.
- Overall, the economic data started to surprise to the downside lately.
- Last week the ISM Services PMI and Jobless Claims surprised to the upside.
- The Fed members are leaning more towards a pause in September.
- The market doesn’t expect the Fed to hike at the September meeting, but there’s now a 50/50 chance of a hike in November.
- The ECB hiked by 25 bps and changed a line in the statement that leant more on the dovish side at the last meeting.
- President Lagarde, in line with the Fed, just reaffirmed their data dependency and kept all the options on the table.
- Inflation measures did soften a bit but remain uncomfortably high.
- The labour market remains very tight with the unemployment rate remaining 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 next 6 months.
- The message from ECB members has been mixed.
- There’s basically a 50/50 chance that the ECB hikes by 25 bps at the upcoming meeting.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the EURUSD pair remains in a clear downtrend with the price printing lower lows and lower highs and the moving averages being crossed to the downside. We recently got a bounce around the 1.07 handle and the price is now pulling back into the downward trendline where we will also find the broken upward trendline and the red 21 moving average for confluence. That’s where we can expect the sellers to step in with a defined risk above the broken trendline and target the 1.05 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price this morning reacted to the resistance zone around the 1.0770 level, but we might see another push to the upside into the 1.08 handle where we have much more technical confluence that should act as a stronger barrier and a better entry area for the sellers. The buyers, on the other hand, will want to see the price breaking above the 1.08 handle to invalidate the bearish setup and position for more higher highs.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we recently got a divergence with the MACD, which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we saw a pullback into the resistance area around the 1.0770 level where the sellers piled in for more downside. The break below the counter-trendline should be another confirmation that the downtrend has restarted and we are likely to see new lower lows soon.
This week we have many important events beginning with the US CPI tomorrow, which is expected to show an increase in headline inflation but further disinflation in the core measure. On Thursday, it will be the time for the ECB Policy Decision and later in the day we will see the latest US Jobless Claims, PPI and Retail Sales data. Finally on Friday, we get the University of Michigan Consumer Sentiment report.