FUNDAMENTAL
OVERVIEW
USD:
The US dollar has been supported following the hawkish Fed dot plot last
week as the central bank’s tightening bias led to a hawkish repricing in
interest rate expectations.
As a reminder, the Fed delivered a hawkish surprise by projecting a rate
hike this year (the consensus was for no cuts or hikes). There are now 32 bps
of tightening priced in by year-end. There’s a 29% chance of a hike in July and
60% probability of a move in September.
There’s been a slightly dovish repricing in the last couple of days. One of
the reasons could be the huge selloff in oil prices which have now reached
pre-war levels. The other reason is that the hawkish repricing might have
reached a near-term peak and for more we will likely need upside surprises in
the NFP and CPI reports.
Although the greenback should remain supported into the data, we might
start to see some consolidation or even pullbacks if don’t get any meaningful
catalyst before the key US data.
EUR:
On the EUR side, the ECB is
maintaining the tightening bias, but all the rate hikes have been already
priced in a long time ago. The central bank is now taking a pause at least
until September to see how the economic data evolves over the summer. The
market is pricing in 28 bps of tightening by year-end with the next hike coming
in September at the earliest.
The Eurozone Flash PMIs this
week showed unsurprisingly the rate of inflation easing to the slowest pace since
February, just before the US-Iran conflict began. While economic activity
remains subdued, the downward pressure eased and we might see more improvement
in the next months. The latest ECB consumer expectations survey has also
confirmed that consumers expect lower inflation and better growth in the year
ahead.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSD broke below a key support
zone around the 1.14 handle opening the door for a drop towards the 1.10 level
next. Right now, we are seeing a retest of the broken support turned resistance.
The sellers will likely step in around these levels with a defined risk above the
resistance to keep pushing into new lows. The buyers, on the other hand, will
want to see the price breaking higher to pile in for a rally into the downward
trendline next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price broke above the minor downward trendline that was defining the
bearish momentum. This might be an early signal of a bigger pullback into the
1.1525 level next, but the price will need to break above the resistance to
open the door for new highs.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, we have a minor upward trendline defining the current
pullback. The buyers will likely continue to lean on the trendline with a
defined risk below it to keep pushing into new highs, while the sellers will
look for a break lower to pile back in for new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we conclude the
week with the final University of Michigan consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.
