EUR/USD surges above 1.15 helped by yen intervention; focus shifts back to fundamentals
FUNDAMENTAL
OVERVIEW
USD:
The US dollar sold off across the board in the final part of last week. The
initial weakness came from the FOMC rate decision as the extra dissent from
Fed’s Kashkari wasn’t taken as a major hawkish surprise.
On Thursday, we had heavy dollar-selling flows stemming from interventions
by Japan and South Korea. The losses then extended on Friday when reports
confirmed that US Treasury participated in the intervention, the first joint
operation since 2011. Moreover, both Japan’s Ministry of Finance and US
Treasury Secretary Bessent have said that they will not hesitate to conduct
more joint interventions in the future.
Given that USD/JPY is now trading around April-May levels, there’s a low
probability of another intervention in the near-future, so the greenback should
go back trading on fundamentals.
Overall, the fundamentals haven’t changed much, so it’s just about waiting
for the US CPI and further US-Iran developments. A de-escalation would keep the
greenback under pressure on easing inflationary worries and lower rate hike
probabilities. An escalation, on the other hand, should continue to support it
on Fed tightening risks. Finally, a hot CPI would probably seal a rate hike at
the September meeting.
EUR:
On the EUR side, the ECB left
interest rates unchanged at the last meeting but communicated via the usual
post-meeting media “leaks” that it’s ready to hike at the September meeting if
the inflation outlook were to deteriorate.
The majority of
policymakers that spoke after the decision stressed data-dependence and
refrained from pre-committing to a policy move in September. They have also
highlighted the lack of clear evidence of second-round effects and stable
inflation expectations.
Nevertheless, the market
pricing is favouring a rate hike with 72% chance of an increase in September
priced in. The Eurozone Flash CPI report on Friday showed core inflation
ticking higher to 2.5% vs 2.4% in the prior month, which keeps the September
meeting live. Without a definitive de-escalation in the Middle East and an
easing in core inflation data in the next report, the ECB will have no choice
but to deliver a rate hike.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDfinally broke above the
downward trendline around the 1.1420 level and extended the gains into the 1.1550
level where the price rejected another major trendline. The sellers will likely
continue to step in around the trendline with a defined risk above it to
position for a drop into new lows. The buyers, on the other hand, will look for
a break to increase the bullish bets into the 1.1850 level next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we now
have a key swing low around the 1.1455 level. If the price gets there, we can
expect the buyers to step in with a defined risk below the level to keep
pushing into new highs. The sellers, on the other hand, will look for a break
to increase the bearish bets into new lows.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the price action might remain rangebound until we
get fresh catalysts from the US-Iran front or US economic data. The red lines
define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the US Job
Openings data. Tomorrow, we have the US ADP and ISM Services PMI. On Thursday,
we get the latest US Jobless Claims figures. On Friday, we conclude the week
with the US NFP report. The US-Iran developments will remain in focus.
This article was written by Giuseppe Dellamotta at investinglive.com.