EURUSD: rate cut is evidently “nearing”

26 thg 8

The most important event during the previous week was the Jackson Hole Symposium, which is gathering central bankers from most important economies. The speech held by Fed Chair Powell was the most important one as he noted that the inflation, around 2.5%, is close to the Fed's target and that the time has come for the first cut of interest rates. Markets have increased significantly odds that the rate cut will occur during the FOMC meeting in September, which is more than clear at this moment. From other macro data posted for the US during the week, the non-farm payrolls annual revision for March dropped by -818K, which was sort of a surprise for markets, as investors did not expect such a high correction figure. FOMC Minutes from the previous FOMC meeting were released, showing no new information which the markets did not already priced.

Inflation rate in the Euro Zone final for July was standing at 0% on a monthly basis, without a change from the previous post. Core inflation final for July was also unchanged at 2.9%. The HCOB Manufacturing PMI Flash for August was standing at 42.1 in Germany, a bit lower from 43.5 expected by the market.

As expected, the Fed Chair Powell's speech at the Jackson Hole Symposium, addressing the inflation and rate cuts, brought some higher volatility on the market. The USD continued to weaken during the last two weeks, ending at the level of 1.1190 against Euro. However, the most important figures in technical analysis occurred during the previous week. The first one is related to the RSI reaching the level of 74, which is a clear overbought market side, indicating potential short reversal in the coming period. The second indicator which occurred on the charts is so-called the golden cross, where the MA 50 crossed the MA200 from the downside. In technical analysis this indicates a high potential for a trend change, or, in concrete case, a further weakening of USD.

Evidently, charts are reflecting what markets are expecting for some time in the past, which is so-called Fed`s pivoting. Although the resistance line at 1.12 has not been clearly tested, there is some space for it to be tested at the beginning of the week ahead. Considering that the RSI reached a clear overbought market side, there is high potential for a short term reversal during the second part of the week. Still, considering current macro circumstances, it should not be expected to make significant moves to the downside. Gradually, the level of 1,10 could be tested in a week or two. Still, on a longer time frame, it should be considered potential for the further upside of the currency pair, considering the formation of the so-called golden cross.

Important news to watch during the week ahead are:
EUR: Ifo Business Climate for August for Germany, GDP Growth Rate final for Q2 for Germany, GfK Consumer Confidence in September for Germany, Inflation rate preliminary in August for Germany, Unemployment rate for Germany in August, Inflation rate flash for August in the EuroZone
USD: Durable Goods orders for July, CB Consumer Confidence for August, GDP Growth Rate second estimate for Q2, PCE Price Index for July, Michigan Consumer Sentiment final for August.