Strong NFP Strengthens the Case for Ongoing Rate Hikes
EUR/USD Bounces at Resistance Ahead of Key Inflation Data.
Once again, the U.S. Non-Farm Payrolls report exceeded expectations last week, showing that 263K new jobs were created during the previous month. The forecast was relatively close, at 248K but the reading shows that the labour market is not slowing down, which strengthens the case for the Fed’s tight monetary policy.
According to futures pricing, the chance of another 75 bps hike at next month’s Fed meeting is 90%, with 150 bps being added by May. This week is filled with important releases, including the main gauge of inflation in the U.S. – the Consumer Price Index – and Retail Sales. Also due this week are the Fed Minutes, which usually offer more insights about the Fed’s next move.
Key Data for the Week Ahead
The first notable release of the week will be the U.S. Producer Price Index (PPI) scheduled for Wednesday at 12:30 pm GMT. The indicator shows changes in the price that producers charge for their goods and services, and has inflationary implications because a higher producer price leads to a higher consumer price.
The FOMC Meeting Minutes come out Wednesday at 6:00 pm GMT and will offer insights into the reasons that determined the latest rate vote. Depending on the wording used and the information contained in the document, we may see a strong reaction from the US Dollar.
The U.S. Consumer Price Index (CPI) is scheduled for release Thursday at 12:30 pm GMT, together with the Core version, which excludes food and energy. The CPI is expected to show a 0.2% change (previous 0.1%), while the Core version is expected to drop to 0.4% from the previous 0.6%. This is one of the Fed’s main inflation gauges, thus it is tightly correlated with the pace of the rate hikes.
The last important release of the week is scheduled for Friday at 12:30 pm GMT: the US Retail Sales and Core version of the same indicator. Sales made at retail levels are important because consumer spending accounts for the biggest part of a country’s economic activity.
Technical Outlook – EUR/USD
Last week the pair reached a high at 0.9999 but encountered a confluence zone and bounced lower, currently trading at 0.9695. Strong resistance and above-expectations job numbers created the perfect symbiosis between the technical side and the fundamental one, which resulted in a significant move down.
The confluence zone between 0.9950 and 1.0000 is created by the 50-day Moving Average, the long-term bearish trend line, and the horizontal level at 0.9950. This zone will likely play an important role going forward.
The first barrier to the south is represented by the lower Bollinger Band and the support at 0.9560. Whether the price will get there or not, will depend on this week’s CPI and the rest of the data mentioned above.
