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Dollar Weakens as Markets Reassess September Fed Hike

Published:

EUR/USD holds above the bearish trend line as bulls target 1.1600 resistance.

The US Dollar weakened throughout last week after a series of disappointing economic releases that included inflation data and retail sales. The US Consumer Price Index (CPI) was in line with expectations, but the Producer Price Index (PPI) missed the forecast.

Sales made at retail levels also disappointed, coming out at -0.6% while the forecast was 0.1%; the Core Retail Sales showed a -0.3% change, worse than the anticipated 0.2%. Consumer sentiment in the US deteriorated in August, largely due to the increased cost of living generated by the Middle East conflict.

All of last week’s economic data further diminished the odds of a rate hike in September; currently, the CME FedWatch tool shows a 33% chance of a rate hike at next month’s meeting, down from 46% before the CPI release. Before the Non-Farm Payrolls (NFP) release, the probability of a 25-bps rate hike was 67%.

Economic Calendar Highlights

We are headed into a quieter week, with the main event being the FOMC Meeting Minutes, scheduled for release on Wednesday at 6:00 pm GMT. The Minutes are a detailed record of the latest FOMC meeting that offers insights into the reasons that determined the latest rate vote. The document can offer clues regarding the data that the Fed pays more attention to.

The Philly Fed Manufacturing Index will be released on Thursday at 12:30 pm GMT, showing the opinions of about 250 manufacturers from the Philadelphia district about the overall business conditions. It’s a leading indicator of economic health, which usually has a limited impact on the market.

A cluster of Purchasing Managers’ Indexes (PMI) will be released on Friday, starting with the German Manufacturing and Services PMIs at 7:30 am GMT, and continuing with the same indicators for the UK economy at 8:30 am GMT. The economic day will end with the release of the US Manufacturing and Services PMIs, scheduled for 1:45 pm GMT.

Technical Outlook – EUR/USD

The euro bulls managed to close last week above the bearish trend line drawn from this year’s high, but now they are facing resistance at 1.1600. All three moving averages (50-day, 100-day, and 200-day) are positioned in a downtrend formation and will provide resistance along with the horizontal levels. The 50-day MA (blue line) is below the current price and can provide support.

The RSI is close to its upper range, without being overbought and without showing obvious signs of divergence. The main question now is whether the bulls can sustain the breakout above the trend line. If we are dealing with a true breakout, then we will probably see a move above 1.1600 and above the 200-day MA (red line).

EUR/USD holds above the bearish trend line after last week's breakout, but bulls face resistance at 1.1600 and the major moving averages before a broader trend reversal can be confirmed.

EUR/USD holds above the bearish trend line after last week’s breakout, but bulls face resistance at 1.1600 and the major moving averages before a broader trend reversal can be confirmed.