FUNDAMENTAL
OVERVIEW

USD:

The US dollar has been
supported since the last FOMC decision but as the hawkish repricing reached a
near-term peak, the momentum waned as traders shifted their focus to the key US
data.

Right now, the market is
pricing in a 29% chance of a rate hike in July, which rises to 65% in
September. I’m pretty sure we will need notable upside surprises in the data to
force the Fed to hike already in July. September would be the preferred month for
them as they also release the SEP and the dot plot.

Given the Fed’s focus on
inflation, the US CPI will likely be more important for market pricing unless
we get a blockbuster NFP report. In line or worse than expected data, should
lead to a pullback pretty much across the board, with the greenback coming
under pressure from some dovish repricing. On the other hand, upside surprises
should keep supporting the dollar.

EUR:

On the EUR side, the recent
inflation data showed a welcome easing for the ECB which, coupled with the quick
drop in energy prices to pre-war levels, greatly diminished the urgency for
further tightening. This is also what policymakers have been communicating via
their recent speeches which seals a pause in July (unless something really bad
happens on the US-Iran/Strait of Hormuz side).

The market is still pricing
in a 30% chance of a hike in July but that should now stand much lower. There’s
a total of 27 bps of tightening still priced in by year-end which suggests the
market is expecting at least another rate hike from the ECB. For now, the data supports
a prolonged pause.

EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that EURUSD pulled back into the broken
support zone around the 1.14 handle and started to consolidate awaiting the key
US data. From a risk management perspective, the sellers will have a better
risk to reward setup around the downward trendline to position for a drop into
the 1.10 handle next. The buyers, on the other hand, will want to see the price
breaking higher to open the door for new highs and target the 1.18 handle.

EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we can
see more clearly the rangebound price action around the 1.14 resistance. There’s
not much we can glean from this timeframe, but the resistance zone should act
as kind of barometer in the short-term with the price staying below it being
more bearish and above it being more bullish. The data US data will have the final
say.

EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME

On the 1 hour chart, there’s not much we can add here but if we get a spike
lower on a good NFP report, we might not see much follow through until the US
CPI as traders might want to wait for inflation data to confirm whether an
earlier than expected rate hike could come, nonetheless, the pair would remain
skewed to the downside. On the other hand, if the NFP report comes in line or
even worse than expectations, we will likely see EUR/USD extending the pullback
into new highs and target the downward trendline next. The red lines define the
average daily range for today.

UPCOMING CATALYSTS

Today, we get the US NFP
report and the US Jobless Claims figures.