The missing US CPI report caused a big sell-off in the US dollar as market expectations turned to the less hawkish side. However, US data still surprised to the upside
US Retail Sales Review Group exceeded expectations by a wide margin and Initial US Claims falling to record lows. Yesterday, US PMI painted a mixed picture with the services PMI finally easing, but the manufacturing PMI surprising with a big jump from 46.2 to 49.0. We will likely see the Fed do more if the data remains this strong.
The ECB is expected to raise the deposit rate by 25 basis points this week to 3.75%. The central bank is expected to emphasize the reliance on data for the September meeting, but is unlikely to pre-commit to anything at that meeting. The Eurozone PMI they continue to decline fairly quickly as the deterioration of the economy becomes clearer in the second half of the year.
EURUSD Technical Analysis – Daily Time Frame
EURUSD daily
On the daily chart, we can see that the break above the upper trendline could just be a fake, and if so, it opens the door for a massive drop to the lower trendline near the 1.08 handle. Before that, buyers will have a strong support zone at 1.1033 where we also find 50% Fibonacci retracement level and a red moving average of 21 for confluence. Here they should pile up with defined risk below the area and target the next high. Sellers, on the other hand, will want to see the price break below support to increase selling pressure and target a lower trend line.
EURUSD Technical Analysis – 4 Hour Time Frame
EURUSD 4 hours
On the 4-hour chart, we see a support zone highlighted by a blue box. The short-term trend is clearly bearish as the price prints lower lows and lower highs while the moving averages are crossed to the downside. A break above the descending minor trend line should give buyers further confirmation of a change in momentum and likely lead to the start of another uptrend.
EURUSD Technical Analysis – 1 Hour Time Frame
EURUSD 1 hour
On the 1 hour chart we can see that we have a divergence with MACD just as we approach a key area of support. This is generally a sign of fading momentum, often followed by pullbacks or reversals. In this case, the resistance to watch is that at 1.1110, where we should find sellers leaning against it to position for a resumption of the downtrend. Buyers will need the price to break above this resistance to confirm a bounce and the possible start of another uptrend.
Upcoming events
The only notable event today will be the US consumer confidence report, but that usually doesn’t affect the market unless there’s a big surprise. The Fed is expected to hike 25 bps tomorrow and the market will be wary of any indication of future intentions. Thursday sees the ECB’s rate decision, where the central bank is expected to hike by 25 basis points and underline its reliance on data for further moves. We will see more US Jobless Claims later in the day where strong data should support the US dollar while weak readings should weaken it. Finally, on Friday we will have the latest US PCE and ECI reports, with the market likely to focus more on the wages data, where the big beat may give the USD some strength.