US:
- 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.
- The US CPI yesterday 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.
- Last week the ISM Services PMI and Jobless Claims surprised to the upside, which point to a resilient economy overall.
- The Fed members are leaning more towards a pause in September and the next decision will still be dictated by the economic data.
- The market doesn’t expect the Fed to hike at the September meeting, but there’s now basically a 50/50 chance of a hike in November.
EU:
- The ECB hiked by 25 bps at the last meeting and changed a line in the statement that leant more on the dovish side.
- President Lagarde just reaffirmed their data dependency and kept all the options on the table.
- 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 next 6 months.
- The message from ECB members has been mixed, but a recent leak flipped market’s expectations for today’s rate decision and the expectation now is for a 25 bps hike.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that we recently got an important breakout of the bottom trendline that opened the door for a fall into the 1.05 handle. The price started to consolidate a little after the breakout and now we might see a bigger pullback into the trendline, which might end up in a classic “break and retest” pattern before another selloff. In fact, we have some strong confluence around the broken trendline as there’s the previous support now turned resistance, the red 21 moving average and the 1.08 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the bearish setup with the Fibonacci retracement levels adding more to the confluence around the broken trendline. This is where we can expect the sellers to pile in with a defined risk above the top trendline and target the 1.05 handle. The buyers, on the other hand, will need the price to break above the top trendline around the 1.0850 level to invalidate the bearish setup and change the trend.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a divergence with the MACD right after the breakout. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we might see the pullback into the 1.08 handle as the price should spike to the upwards following today’s ECB rate decision, and that’s when the sellers should start fading the move as the market is likely to “sell the fact”.
Upcoming Events
Today we have many important events beginning with the ECB rate decision where the central bank is expected to hike by 25 bps following a leak on Tuesday which revealed that the ECB was going to revise its inflation forecasts to the upside. Later in the day we will get the US Jobless Claims, Retail Sales and PPI data which might boost the USD even more if the data comes out on the strong side. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment report.
See also the video below
