Fed Tapering May Be Delayed

NFP Disappoints, Fed Tapering May Be Delayed

Last Friday’s Non-Farm Payrolls report delivered a big blow to the US Dollar, as it showed that only 235,000 new jobs were created, compared to the median forecast of 728,000. The disappointing numbers were attributed to an increase in COVID-19 cases, which weighed on the leisure sector as well as demand at restaurants and hotels. Despite this, the Average Hourly Earnings increased by 0.6% (forecast 0.3%), possibly due to the lack of workers triggered by the coronavirus pandemic.

This fueled bets that the Fed may delay the start of the stimulus tapering, mainly because Fed Chair Powell restated last month that the stimulus program will stay in place until “substantial further progress” can be seen in the jobs market.

On the other hand, the Euro has been supported by clues that the European Central Bank may begin to taper its stimulus program. This Thursday the ECB will release the Monetary Policy Statement, which may offer additional clues regarding the timing of a possible taper.

Key Events for the Week Ahead

U.S. banks are closed Monday in observance of Labor Day and the next hints regarding the Fed’s future monetary plans may come Wednesday at 5:10 pm GMT, when New York Fed President Williams will speak about the economic outlook at a webinar hosted by St. Lawrence University.

The last economic indicator of the week that may have a notable impact on the greenback is the Producer Price Index (PPI), which comes out Friday at 12:30 pm GMT. The index measures the change in the price charged by producers for finished goods and services and has inflationary implications because a higher producer price usually translates into a higher consumer price.

On the Euro side, the most notable event of the week will be Thursday’s ECB meeting. The Monetary Policy Statement will be released at 11:45 am GMT, containing the interest rate decision and insights into the economic conditions that influenced it. Later, at 12:30 pm GMT, ECB President Lagarde will hold a press conference, which usually triggers volatility, especially during the Q&A phase.

Technical Outlook EUR/USD

The pair is currently trading at 1.1860, after a picture-perfect rejection at 1.1900 resistance. Although the RSI didn’t reach its 70 level, which indicates overbought, the entire bullish move that started below 1.1700 was overextended and in need of a pullback.

The MACD is still moving up, with considerable momentum (lines are spread apart), but the RSI is showing a type of bearish divergence: the last two significant price peaks form a double top but the indicator shows a higher high. This type of divergence, while not as strong, is still an indication that price may descend.

The main levels to watch are 1.1800 (and the 50 days Moving Average) as support, and 1.1900 as resistance. If resistance is broken, the next stop will likely be 1.1970 – 1.2000 but the pair’s movement will be heavily influenced this week by the fundamental side.