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EUR/USD has taken quite the drubbing over the past four week. And given the plethora of support levels it used as a springboard to buck the trend on Thursday, I suspect at least a retest of its 200-day SMA could be on the cards.
Betting against the market has proved to be very costly this year, with all sorts of dips being bought fairly quickly. But is this another such scenario or is it different this time around – especially with US presidential election now just three weeks away?
EUR/USD is hugging its cycle lows and gold sits at a technical juncture ahead of today's highly anticipated inflation report.
Yes, I may have just given the USD the kiss of death with that headline. Besides, the dollar has already rallied for four days into the release, so it may take a strong report overall to avoid a profit-taking pullback.
Gold, silver and copper were dragged lower with appetite for risk on Tuesday, although it may be the latter two which show the greater potential for bears going forward.
If ISM manufacturing deteriorates further, it could helped EUR/USD reclaim the 1.11, handle, even if the weekly timeframe looks like it can still move lower beyond any such bounce.
Nvidia’s earnings report on Thursday has the potential to drive sentiment for the Nasdaq 100, particularly if it misses estimates for the first quarter in seven. Traders will then focus on the PCE inflation report on Friday to assess Fed policy – assuming Jerome Powell hasn’t made it crystal clear what to expect at his Jackson Hole speech later today. Which seems unlikely.
Momentum finally turned lower on Wall Street after two Fed members forced traders to question their increasingly dovish positioning, ahead of Jerome Powell’s speech at Jackson Hole. USD/JPY may have already seen the swing low I've been seeking this week.
Large speculators flipped to net-long exposure to yen futures for the first time since February 2021, fuelled by a surge in long bets and plunge of shorts. Yet asset managers are taking a more cautious approach to being bullish the yen.
Following the slightly weaker US CPI data, the key question now is whether the US central bank will opt for 25 or 50 basis points in September, and at what pace it will continue thereafter. The US dollar weakness should persist I reckon, which should keep the AUD/USD forecast bullish. But the Aussie is now going to face a fresh test from upcoming Australian jobs and Chinese industrial data.
With industrial data remaining weak in the Eurozone and after a dismal ZEW survey for Germany yesterday, you might be wondering what on earth are FX traders smoking by bidding up the EUR/USD?
So why isn’t the EUR/USD falling? In addition to concerns over inflation persistence in the Eurozone, the improvement in risk appetite in recent days is also working against the euro bears who must be frustrated by the lack of volatility despite weaker Eurozone data. Then there is the US dollar side of the story to consider, too. The latter is far more important in my view than any of these factors mentioned.
The cable is facing a key test this week with inflation and retail sales data to come from both sides of the pond. Market volatility has died down and the US dollar has fallen against the high-beta commodity dollars and risen against low-yielding currencies like the Japanese yen. If we don’t see any upside surprises in US inflation and activity data this week, this should cause the US dollar to fall further.
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