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Hawkish Powell Boost USD
EURUSD was seen sinking lower yesterday in response to hawkish comments from Fed’s Powell and softer eurozone inflation for last month. Speaking at business conference, Powell was seen pushing back firmly against those calling for a further .5% hike before year end. Powell signalled that the Fed’s expected progression was two further cuts of .25%, warning that traders should not anticipate a more aggressive easing path on the basis of September’s .5% cut. A stronger JOLTS job openings number yesterday helped lift the USD rally further as traders scaled back their easing expectations for November.
ECB Easing Expectations
Along with the recent uptick in USD, EUR is also being weighed on by a softer set of inflation readings yesterday. Headline eurozone CPI was seen falling to 1.8% from 2.2% prior while core CPI was seen falling to 2.7% from 2.8%. With inflation continuing to trend lower, and headline CPI now below the bank’s 2% target, traders are increasing their ECB easing bets for October. Indeed, speaking yesterday, ECB chief Lagarde told lawmakers in Europe that recent developments had ‘strengthened’ the bank’s views on inflation returning to target and would be taken into account at the October meeting.
Near-Term View
Against this backdrop, EURUSD looks vulnerable to further weakness into the October meeting. Looking ahead this week, focus will be on Friday’s US labour market data. Any shift lower in USD in response to fresh weakness should help stem the selling in EURUSD for now. However, if we see any surprise upside, this will no doubt boost USD sending the pair lower here.
Technical Views
EURUSD
The rally in EURUSD has once again stalled into the 1.12 level. Price is now potentially setting up a double top structure here, with strong bearish divergence in momentum studies readings. While below the 1.1126 level, focus is on a deeper push and a test of 1.0937 next, which bulls need to defend to maintain the broader bull bias.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.