Solid NFP Overshadowed by the Trade War. CPI Next
EUR/USD Drops Back Down After Massive Rally. Bearish Divergence at Play.
Wall Street is in disarray, with the S&P 500 down more than 10%, and stocks like Apple and Tesla down more than 13% and 10%, respectively. The US Dollar Index (DXY) dropped from 104.20 to 101.40 in the two days following President Trump’s announcement of the new tariffs. The dollar seemed to regain some of its footing, finishing the week higher, at 102.90 but overall the markets are red and possibly bleeding some more.
Fed Chair Jerome Powel said that the tariffs are “larger than expected”, which augmented the impact and drove EUR/USD to a high of 1.1145. The dollar erased some of the losses, finishing the week at 1.0960. Going forward, the Fed will have to assess the extent to which the economy will be affected by the tariffs and potentially adjust the monetary policy.
The Non-Farm Payrolls report posted better-than-expected numbers, showing that at least for now, the U.S. economy is healthy. Most of the recovery of the dollar came after the NFP release.
Economic Calendar Highlights
The first notable release of the week will be the FOMC Meeting Minutes, scheduled for Wednesday at 6:00 pm GMT. The document offers details about the latest rate meeting and it can have a higher market impact if it contains clues about the Fed’s next move.
U.S. inflation is about to come into the spotlight again due to the possible trade war. The CPI, which is the main gauge of inflation will be released Thursday at 12:30 pm GMT; the monthly Core version is expected to increase 0.3% (previous: 0.2%) but the yearly headline figure is expected to drop from 2.8% to 2.6%.
The Producer Price Index (PPI) will come out Friday at 12:30 pm GMT, showing changes in the price charged by producers for their goods and services. The last releases of the week will be the University of Michigan Consumer Sentiment survey and Inflation Expectations survey. They are both scheduled for Friday at 2:00 pm GMT.
Technical Outlook – EUR/USD
Wednesday and Thursday the Euro bulls were in control and managed to take the pair close to the massive resistance at 1.1200. The move stopped at 1.1145 and the pair dropped below the 1.1000 level on Friday. The week opened with a gap that but it was already closed.
Under normal circumstances, a drop below 1.1000 could be followed by a move lower but it is unclear how the trade war and the new tariffs will affect the greenback.
The RSI was overbought twice lately and the two peaks show bearish divergence: the price made a higher high but the RSI made a lower high. This favors a stronger bearish move that may extend below 1.0900. A quick climb above 1.1000 would invalidate such a scenario.
