EUR was on the retreat on Friday, ahead of the ECB meeting, as markets expect policymakers to provide fresh stimulus for the area’s economy. There seem to be heightened expectations about a possible stimulus, yet it may prove to be uncertain what the actual outcome may be. The market seems to be pricing in by 100% a possible cut of the bank’s deposit rate by 10 basis points. A power struggle seems to be ongoing in Eurozone’s central bank, where some are arguing for an even deeper cut (for example 20 bp) and/or a restart of the banks’ QE program which would inject cash directly into the area’s economy. It should be noted though that policymakers such as Weidman and Lautenschlager may be considering an aggressive package of support as an overreaction. Given the degree of uncertainty incorporated into the decision, the release seems to be a key event for the current week.
EUR/USD dropped on Friday aiming for the 1.1000 (S1) support line yet stabilised during today’s Asian session. The pair seems to be trading in a sideways manner, yet fundamentals could weaken the EUR side. Should the bears actually take control over the pair’s direction, we could see it breaking the 1.1000 (S1) support line and aim for the 1.0950 (S2) support level. Should the bulls take over, we could see the pair breaking the 1.1050 (R1) resistance line and aim for the 1.1100 (R2) resistance level.
Mixed messages from the US employment report on Friday
The USD retreaded a tad on Friday against a number of its counterparts as the US employment report for August and Fed’s Chairman Powel sent mixed messages to the markets. The unexpected wide drop of the NFP figure characterized the release, while the unemployment rate and average earnings remained stable. The release cemented the market’s view of a possible rate cut in the September meeting and increased expectations for a further cut in October. Fed Chairman Powell’s speech later on, did little to change that perspective as he reiterated that the bank will act appropriately to sustain expansion and wasn’t forecasting a recession. We expect volatility to continue for the USD this week and tend to focus for financial releases near the end of the week as well as fundamental issues.
USD/JPY on Friday, broke the upward trendline incepted since Wednesday in a sideways motion between the 107.20 (R1) resistance line and the 106.60 (S1) support line. As the pair broke the prementioned upward trendline, we switch our bullish outlook for the pair, in favor of a sideways movement. Should the pair find fresh buying orders along its path, we could see it breaking the 107.20 (R1) resistance line and aim for the 107.75 (R2) resistance hurdle. On the flip side should the pair come under the selling interest of the market, we could see it breaking the 106.60 (S1) support line and aim for the 106.00 (S2) support barrier.
Other economic highlights today and early tomorrow
In today’s European session, we get Germany’s trade data for July, UK’s GDP rates, manufacturing output growth rate and trade data, all for July as well as Eurozone’s Sentix index for September. In tomorrow’s Asian session, we get China’s inflation rates for August. As for speakers, please note that BoE’s MPC member Gertjan Vliege is scheduled to speak.
As for the rest of the week
On Tuesday, we get UK’s employment data for July. On Wednesday, we get the US PPI rates for August. On Thursday, we get Japan’s PPI rate for August and machinery orders for July, Eurozone’s industrial production for July, CBRT’s interest rate decision, ECB’s interest rate decision and the US inflation rates for August. On Friday, we get the US retail sales growth rate for August and the US Michigan consumer sentiment.
USD/JPY H4
Support: 106.60 (S1), 106.00 (S2), 105.30 (S3)
Resistance: 107.20 (R1), 107.75 (R2), 108.35 (R3)
EUR/USD H4
Support: 1.1000 (S1), 1.0950 (S2), 1.0910 (S3)
Resistance: 1.1050 (R1), 1.1100 (R2), 1.1155 (R3)
