From Red Monday to Recovery: A Wild Week In The Markets
Market Volatility Post-Red Monday: False Breaks and Next Moves
Following Red Monday, markets were in shock and there were even talks of an emergency Fed meeting discussing a 75-bps rate cut. The Dollar Index (DXY) fell to 102.16 but recovered throughout the week to a high of 103.55 and is currently trading at 103.15. Yields and the S&P 500 fell sharply but the markets settled by the end of the week and a nice chunk of the losses was erased.
Against the Euro, the Dollar underperformed drastically and the pair jumped from 1.0775 support to 1.1000, breaking a long-term bearish trend line. EUR/USD is now trading at 1.0920 and it looks like the Dollar bulls are trying to regain the support at 1.0900.
According to CME’s FedWatch tool, at the time of writing the chance of a 25-bps cut is 51.5%, while the rest is reserved for a 50-bps cut in September. However, the probability of a cut is 100%.
Economic Calendar Highlights
As opposed to last week, this one is filled with high-caliber economic releases, starting Tuesday at 12:30 pm GMT with the U.S. Producer Price Index (PPI). The report shows changes in the price that producers charge for their finished goods and services and has inflationary implications because a higher price charged by consumers will be eventually passed onto the client.
Wednesday at 12:30 pm GMT we take a look at the most important inflation gauge for the U.S. economy: the Consumer Price Index (CPI). The monthly Core CPI is expected to climb 0.2% from the previous 0.1%, while the yearly headline figure is expected to remain unchanged at 3.0%.
The U.S. Retail Sales and Core Retail Sales will come out Thursday at 12:30 pm GMT and the economic week will finish Friday with the Prelim UoM Consumer Sentiment due for release at 2:00 pm GMT.
Technical Outlook – EUR/USD
The pair is currently at a crossroads and is trading almost at the same price where we left it in our previous post, although it travelled a long distance in the meantime. After the initial break of 1.0900 and the trend line, Euro bulls took the pair into the resistance at 1.1000 and then the Dollar bulls took it right back.
The last few candles have long wicks and small bodies, which are both signs of indecision. This is probably because the trend line and the S/R at 1.0900 act like a confluence zone and this type of zone is always difficult to break. On the other hand, a break can trigger strong movement, as seen last week when 1.0900 was first broken.
Depending on what the fundamental side has to say, we may see a break of 1.0900, considering the strong rejection at 1.1000 and the fact that the RSI shows bearish divergence. On the other hand, if the pair moves above the trend line, it will likely travel to 1.1000 again.
