US Dollar Bull Run Pauses: ECB Rate Cut Takes Center Stage
EUR/USD Approaches Oversold, Eyes 1.1000 Resistance after Rejection at 1.0900
Inflation in the U.S. came in slightly hotter than expected, as shown by the Core Consumer Price Index (CPI) released last week, which rose by 0.3% while the forecast was 0.2%. However, this is still in line with last month’s data, which was also 0.3%, so it’s not alarming.
The unemployment claims surged, showing that the labor market is cooling off. However, the jobless claims readings are likely affected by the hurricanes that are plaguing the U.S.
The US Dollar Index (DXY) is showing signs of slowing down after a bullish run that took it from 100.20 to a high of 103.13 from the start of the month until the present day. Against the Euro, the greenback had a similar behavior, taking the single currency from 1.1200 to 1.0900 since the start of October.
The markets have ruled out the possibility of another jumbo-cut in November, as evidenced by the CME FedWatch tool which shows an 88.8% probability of a 25-bps cut, with the rest of 11.2% reserved for a no-cut scenario.
The main event of this week will be the European Central Bank rate cut scheduled for Thursday. The ECB is expected to further trim the rate, which may create some interesting movement on EUR pairs.
Economic Calendar Highlights
U.S. banks will be closed Monday in observance of Columbus Day and there are no other notable economic releases by the rest of the world either.
The German ZEW Economic Sentiment survey will be released Tuesday at 9:00 am GMT and the Empire State Manufacturing Index will come out later in the day at 12:30 pm GMT. These are medium-impact indicators, which may also go largely unnoticed.
Thursday at 12:15 pm GMT, the ECB will announce the Main Refinancing Rate, which is expected to go down from the current 3.65% to 3.40%. The ECB Press Conference will take place at 12:45 pm GMT and this is usually the time when volatility increases the most, based on ECB President Lagarde’s insights and answers to journalists’ questions.
In between the two European events, the U.S. will release the Retail Sales, at 12:30 pm GMT. Since sales made at retail levels represent a major part of the economy, the event should be treated with caution, especially considering the ECB announcement and press conference which are close to that time.
Technical Outlook – EUR/USD
After the double top at 1.1200, the US Dollar bulls managed to take the pair significantly lower, breaking several important support levels in the meantime, the most notable being the 50-day MA and the level at 1.1000.
The current move is showing rejection at the 1.0900 support and the RSI is approaching oversold. This means that we will probably see a move up in the near future. This potential move will likely find resistance at 1.1000. If the price breaks through the support at 1.0900, it will probably be rejected by the long-term bearish trend line seen on the chart below.
