Euro, US Dollar, ECB – TALKING POINTS
- EUR/USD may rise if US retail sales, sentiment data undershoot
- Underperformance in reports could amplify Fed rate cut bets
- Euro rose despite the ECB delivering rate cuts, reintroduced QE
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EUR/USD may continue to rise if US retail sales and University of Michigan sentiment data underwhelm and magnify what are already-swollen Fed rate cut bets. Overnight index swaps are currently pricing in a 99 percent chance of a 25 basis-point cut next week, with a 45 percent probability of a 50bp cut in October. These publications could help boost EUR/USD’s recent climb, especially after the ECB rate decision.
Despite the European Central Bank delivering a 10 basis point rate cut – delving deeper into negative territory – and reintroducing QE, the Euro rose – as forecasted. Mario Draghi and Co. failed to meet the market’s ultra-dovish expectations, and this subsequently caused capital to flow into the Euro. It speaks volumes that despite the ECB delivering accommodative monetary policy, markets are still thirsty for more liquidity.
Now looking to the US, upcoming retail sales and sentiment data may amplify EUR/USD’s rise if it fuels Fed easing expectations. Despite eroding fundamentals, markets are choosing to ignore them and instead are focusing on the near-term pro-risk developments. Namely, a temporary cooling of trade tensions between the US and China have buoyed sentiment and put anti-risk assets at a discount and their counterparts at a premium.
EUR/USD Technical Analysis
EUR/USD has re-entered a familiar descending resistance channel – which at times has acted as support – and could be poised to breach the upper crust. Upcoming US data may be a key catalyst for this break above. If the pair manage such a feat with follow-through, it could lead to a small rally in the pair. However, clearing familiar resistance may not give traders a reason to rejoice. The path upward is a daunting one.
Chart of the Day: EUR/USD Has a Long Way to go Before it Reaches February 2018 Highs
EUR/USD chart created using TradingView
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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter