Tariff Turmoil Cools Off. Inflation and Jobs in Focus
EUR/USD: The Pullback Has Started. RSI Descends from Overbought
The dollar finally showed glimpses of recovery last week, as did U.S. stocks. President Trump was once again the catalyst for these moves. Earlier in the week, Trump rocked the US Dollar with threats to fire Fed Chair Powell over interest rate issues. In the President’s view, the Fed is not lowering the rate quickly enough.
Although in theory the Fed Chair cannot be directly fired by the President, in practice there are ways to make this happen. The “threat” did not sit well with the markets and was viewed as a new reason for uncertainty. However, later in the week, President Trump said he never had any intention to fire Powell.
Regarding tariffs, Trump is leaning toward a de-escalation of the conflict and he mentioned that talks with the Chinese administration are already underway. In a Time magazine interview, Trump mentioned that Chinese President Xi Jinping called him. However, there seem to be a few discrepancies between the Chinese and American depictions of how the events unfolded.
Although there is no way to know for sure what happened and what words were spoken, it is starting to become clearer that the tariffs are not climbing anymore and that the two sides seem more willing to reach an agreement.
Economic Calendar Highlights
It’s a big week for the US Dollar but the first two days lack any major releases. The action picks up Wednesday with the German Prelim CPI at 12:00 pm GMT and the U.S. Core PCE Price Index later at 2:00 pm GMT. This is the Fed’s preferred inflation gauge and has a big role to play in the interest rate decision.
European banks will be closed on Thursday in celebration of Labor Day and on the U.S. side, the only notable release will be the ISM Manufacturing PMI scheduled for 2:00 pm GMT.
The main event of the week will be the release of the U.S. Non-Farm Payrolls (NFP) report scheduled for Friday at 12:30 pm GMT. This is the main gauge of the health of the job market in the U.S. and usually has a very strong impact on the greenback. The Fed also keeps an eye on the labor market when deciding where to set the interest rate, which increases the importance of the release.
Technical Outlook – EUR/USD
The pair failed to break the resistance at 1.1500 and this was a combination of both technical and fundamental reasons. The move was overextended, with the RSI in overbought and showing divergence. On the fundamental side, the de-escalation of the tariff situation and Trump’s clarifications regarding Powell’s job helped with the dollar’s recovery.
Although it is showing optimistic signs, the USD is not yet strong enough to drag the pair significantly lower. This means that we will not see a major drop in EUR/USD unless the greenback receives a boost from the tariff negotiations. For now, the main levels to watch are 1.1500 as resistance and 1.1200 as the first major support.
