Economic Power Week: Inflation and NFP Take Center Stage
Bullish Divergence Points to EUR/USD Pullback, Economic Data May Shift Bias
Last week’s laid-back economic calendar will make way this week for market-movers galore: from major corporate earnings to inflation data and the king of economic indicators, the NFP. We will most likely see some interesting moves that will set the tone for the next medium-term behavior.
An election in Japan over the weekend sent the Yen to a 3-month low against the US Dollar, but the fact that the US Dollar Index (DXY) is as high as it’s been since July also had a considerable impact.
The greenback bulls took the Euro right into the support at 1.0775 and the pair is now showing signs that a pullback is in the making. The inflation data (PCE) that’s coming out this week alongside the Non-Farm Payrolls report could trigger this pullback or the charts will start showing divergence. The U.S. election is fast approaching, which is another reason for increased volatility.
Economic Calendar Highlights
The CB Consumer Confidence survey is the first notable release of the week, scheduled for Tuesday at 2:00 pm GMT. Action picks up Wednesday with German inflation data in the form of the CPI that will be released at 12:00 pm GMT. It will be followed at 12:15 pm GMT by the release of the ADP Non-Farm Employment Change, which is a report that tries to mimic the government-issued NFP that comes out 2 days later.
Eurozone’s Corer CPI Flash Estimate is scheduled for release Thursday at 10:00 am GMT and will be followed by the U.S. Core PCE Price Index at 12:30 pm GMT. This is the Fed’s preferred inflation gauge and will have a strong impact on their rate decisions going forward.
The week will end with the release of the most important jobs data: the Non-Farm Payrolls (NFP) report, which is set for release Friday at 12:30 pm GMT. More jobs are indicative of a strong economy and this could lead to fewer rate cuts than what is priced in at the moment. The Average Hourly Earnings and the Unemployment Rate that are released at the same time will paint a clearer picture of the U.S. jobs market.
Technical Outlook – EUR/USD
The pair is currently trading at 1.0810 after a bounce at the 1.0775 support. The RSI is already showing bullish divergence and is moving out of oversold but another test of support is not out of the question.
Last week the pair broke through a long-term bearish trend line drawn from last year’s top and it looks like the US Dollar bulls are in control. Although the technical side indicates that a stronger pullback may be in order, the economic data that’s set for release this week may invalidate such a scenario.
The main levels to watch are the support at 1.0775 and the long-term bearish trend line which may act as resistance. A stronger barrier in front of rising prices is located at 1.0900.
