Dollar Slumps on Weak Non-Farm Data. Focus Shifts on CPI
EUR/USD: Momentum Building as the Pair Approaches Key Resistance Level.
As the U.S. Non-Farm Employment report fell short of expectations Friday, the dollar index (DXY) declined by -0.86%, reaching a two-week low. In June, non-farm payrolls in the United States increased by 209K, which was lower than the anticipated 224K and marked the smallest growth in two and a half years. May’s reading was revised downward from 339K to 306K.
The unemployment rate stayed within expectations, dropping by -0.1 and reaching 3.6%. The average hourly earnings rose by +0.4% on a monthly basis; the forecast was +0.3%.
Chicago Fed President Goolsbee made positive comments on Friday, which supported the dollar. He expressed confidence that policymakers are on a “golden path” towards managing price growth effectively, without triggering a recession.
EUR/USD rose by +0.73% on Friday, reaching a one-and-a-half-week high. An important role in the climb was played by hawkish remarks from ECB President Christine Lagarde. She emphasized that policymakers still have “work to do” in order to address and control inflation and also mentioned that the ECB is prepared to take prompt action if there is a simultaneous rise in both company wages and margins, further highlighting their commitment to managing inflation.
Key Data for the Week Ahead
Tuesday, 9:00 am GMT: German ZEW Economic Sentiment: It provides insights into the outlook and sentiment of financial experts regarding the German economy.
Wednesday, 12:30 pm GMT: The U.S. Consumer Price Index (CPI) and Core CPI measure changes in the prices of a basket of goods and services. A 0.3% increase in CPI is anticipated, indicating a potential rise in inflation, while Core CPI is expected to decrease by 0.3% (it excludes volatile food and energy prices from the calculation).
Thursday, 12:30 pm GMT: The U.S. Producer Price Index (PPI) and Core PPI track changes in wholesale prices charged by producers for the goods and services they sell. The Core version offers insights into inflationary pressures at the producer level, excluding food and energy costs.
Friday, 2:00 pm GMT: University of Michigan Consumer Sentiment survey gauges consumer confidence and their outlook on the overall economic conditions. This data provides insights into consumer spending patterns and future economic growth; the impact is usually medium.
Technical Outlook – EUR/USD
The pair is currently trading at 1.0950, after a bounce at the 50-day Moving Average. The bulls were active Friday following the release of the U.S. jobs data.
Currently, the pair is approaching both the upper Bollinger Band and the major resistance level at 1.1000. This suggests that there might be a potential barrier to further upside movement.
The Relative Strength Index (RSI) is not indicating an overbought condition at the moment. This indicates that there might still be room for the pair to move up without being excessively overvalued.
Although it looks like an encounter with 1.1000 is very probable, just keep in mind that this barrier was tested several times this year and the bulls failed each time to surpass it. A break would show increased bullish momentum and possibly a longer climb.
