Fed Week: Dollar Under Pressure Ahead of Interest Rate Cut
EUR/USD in Range Mode. Can the Bulls Renew the Uptrend?
Last week, the greenback weakened across the board after the annual inflation numbers met expectations, and the monthly CPI edged higher, increasing by 0.4% (forecast 0.3%). Inflation is not accelerating at an alarming pace, but the yearly CPI sits at 2.9%, which is almost a full percent above the Fed’s 2.0% target. Despite this, a rate cut on September 17 is certain, according to CME’s FedWatch tool, which shows a 93% probability of a 25-bps cut and a 7% probability of a half-point reduction.
The main driver for this projected rate cut is the jobs situation. Earlier this month, the Non-Farm Payrolls report showed that only 22K jobs were created in August. The previous months’ NFPs also showed evidence that U.S. jobs need a jolt, which is probably why the rate is set for a trim.
Economic Calendar Highlights
The first event of the week will be the release of the U.S. Retail Sales numbers, scheduled for Tuesday at 12:30 pm GMT. Sales made at retail levels account for the biggest part of consumer spending, which in turn represents the main part of overall economic activity. Higher retail sales are indicative of a thriving economy.
The main event of the week will be the Fed rate announcement, scheduled for Wednesday at 6:00 pm GMT. A rate cut is almost certain, so it will be interesting to see Powell’s stance during the press conference, which is scheduled for 6:30 pm GMT. The dollar could weaken more if the Fed Chair hints at multiple rate cuts this year.
Technical Outlook – EUR/USD
The pair is trading above the bearish trend line drawn from the July high, but after the break of the line, the bulls did not manage to take the price significantly higher. Price action looks more like a slow grind than an uptrend with strong momentum, which could favour an extended period of range-bound trading.
September has not been very active thus far, and because the rate cut is almost fully priced in, the effect of the release may be muted. However, Fed Chair Powell’s press conference may generate higher volatility.
The RSI is moving slowly to the upside, but it is far from being overbought, and there is no notable divergence. The price is hanging around the upper Bollinger Band, which could send it lower if the bulls don’t manage to break the upper band. If the level at 1.1700 turns into support, it may push the pair towards 1.1800 and even 1.1900 depending on Wednesday’s events. On the other hand, a bearish break of 1.1700 would open the door for a return below the bearish trend line.
