NFP Blowout Raises Rate Hike Bets Ahead of CPI

EUR/USD holds above 1.1600 after repeated bounces from the 100-day MA

The dollar got a massive boost on Friday from a stellar jobs report, which massively surpassed market expectations by showing that 162K new jobs were created during the previous month. The forecast was just 55K, but the actual number sent the probability of a rate hike later in the month to 60%, according to the CME FedWatch tool.

Previously in the week, Fed Governor Christopher Waller commented that he would favor keeping the rate on hold if inflation remains tame. This temporarily weakened the dollar, but the NFP release reversed the move and sent the probability of a rate hike back up.

Heading into this week, all eyes will be on the US inflation data that is due on Friday. This CPI release is the last major data the Fed will receive before the interest rate meeting, and it just may be the deciding factor for the September rate.

Economic Calendar Highlights

US banks will be closed on Monday in observance of Labor Day, and no major economic indicators will be released until Thursday.

The European Central Bank (ECB) will announce the interest rate on Thursday at 12:15 pm GMT, and market participants are expecting a 25 bps hike, from the current 2.40% to 2.65%. This would likely strengthen the euro, pushing EUR/USD higher. ECB President Lagarde will hold a press conference at 12:45 pm GMT. The conference is usually a volatility booster for euro pairs.

The US Producer Price Index (PPI) will be released on Thursday at 12:30 pm GMT, and although it has some inflationary implications, it is nowhere near as impactful as the Core Consumer Price Index (CPI). The CPI and Core CPI reports are scheduled for release on Friday at 12:30 pm GMT. This is the main gauge of inflation in the United States, and the Federal Reserve pays special attention to the Core version, which excludes food and energy from the calculation.

Technical Outlook – EUR/USD

The pair is once again trading above 1.1600 after bouncing several times off the 100-day MA (yellow line) and failing to break support. For the time being, the main levels to watch are 1.1600 and 1.1700, but the pair is in a broader range, defined by 1.1400 and 1.1900.

We can expect to see choppy price action until Thursday, when the ECB will announce the interest rate, but the main event will be the CPI release on Friday. Until then, the technical side will be overshadowed by the US inflation data, which will probably decide the next medium-term direction.