Dollar Drops Ahead of NFP as Fed Jumbo-Cut Speculation Grows
Double Top at 1.1200 and RSI Divergence Suggest Bearish Pressure for EUR/USD.
The dollar closed the week lower after the Personal Consumption Expenditure (PCE) price index posted softer-than-expected numbers. This shows that the Fed’s decision to apply a super-sized cut was not premature.
The PCE increased by 0.1%, lower than the forecast (0.2%) and lower than the previous month’s 0.2%. The yearly figure also came lower than the previous, sparking speculation about another 50-bps cut at the next FOMC meeting in November.
A regular 25-bps cut is fully priced in and interestingly enough, at the time of writing the chances of a jumbo cut are higher than the ones of a regular cut. The probability of a 50-bps cut is 53.3% while the rest of 46.7% is reserved for a more tame approach.
These percentages are likely to change this week, depending on the outcome of the Nonfarm Payrolls (NFP) that will be released during the last day of the week. If job creation does not slow down (or it picks up), the next move of the Fed will become clearer.
Economic Calendar Highlights
Monday at noon we take a look at German inflation with the release of the German CPI, which is expected to increase from last month’s -0.1% to 0.1%. The release will affect the Euro as the German economy is the backbone of the Eurozone economy.
On the same day at 1:00 pm GMT, ECB President Lagarde will speak about monetary policy at the European Parliament. Later in the day, at 5:55 pm GMT Fed Chair Powell will participate in a moderated discussion in Nashville at the National Association for Business Economics Annual Meeting.
The Eurozone Core CPI Flash Estimate will be released Tuesday at 9:00 am GMT, followed at 2:00 pm GMT by the U.S. ISM Manufacturing PMI.
Wednesday at 12:15 pm GMT we take an early look at the U.S. jobs market with the release of the ADP Non-Farm Employment Change.
Thursday’s most notable release will be the U.S. ISM Services PMI scheduled at 2:00 pm GMT. The week will end with the main event, which is the Non-Farm Payrolls report (NFP) that shows the change in the number of employed people during the previous month (excluding the farming industry). The NFP is scheduled for release Friday at 12:30 pm GMT and will be accompanied by two other notable indicators, the Average Hourly Earnings and the Unemployment Rate.
Technical Outlook – EUR/USD
The pair has been wobbling back and forth for almost the entire last week, mainly staying between the support at 1.1120 and the resistance at 1.1200 with minor exceptions.
Recent price action created a double top at 1.1200, which is an important factor going forward for several reasons. The pair is dealing with a big round number (1.1200) which is a strong resistance by itself but moreover, the RSI is showing bearish divergence and a double top is present.
During the previous top, the RSI was higher than it is now, so the oscillator is making a lower high while the price is making a double top. This is not the strongest form of divergence but combined with the other factors, it may generate a notable move south.
