The Dollar Backs Off as Fed Policy Shift Nears

Weekly Round-Up: Inflation, Non-Farm Payrolls, and More.

The greenback is trading at multi-month lows, weighted by speculation that the Fed is preparing to slow the pace of its rate hikes, as shown by last week’s FOMC minutes release. After an initial climb above the resistance at 1.0350, the market exhibited range-bound conditions and started to bounce near the said S/R level.

The lack of major data releases and the celebration of Thanksgiving Day played a role in the ranging movement. The story is different this week and there’s certainly no lack of releases. From speeches to consumer data, jobs, and inflation gauges, this week has it all, thus we could be in for a wild ride.

Key Data for the Week Ahead

Monday at 2:00 pm GMT, ECB President Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament. Three hours later, FOMC’s Bullard will speak in an interview hosted by MarketWatch. The expected impact for both appearances is medium but keep an eye out for surprises.

Tuesday at 3:00 pm GMT the U.S. Consumer Confidence survey comes out and Wednesday at 10:00 pm GMT we take a look at European inflation with the release of the CPI Flash Estimate and Core version of the same indicator.

Also Wednesday, the ADP Non-Farm Employment Change will be released at 1:15 pm GMT, followed at 1:30 pm GMT by the U.S. Prelim GDP. Fed Chair Powell will speak later in the day, at 6:30 pm GMT and this will be his first appearance since the press conference that followed the latest rate meeting.

Thursday at 1:30 pm GMT, traders and investors will focus on the Core PCE Price Index, which is one of the Fed’s main inflation gauges, and thus it affects the rate decisions going forward. The expected change is 0.3%, while the previous was 0.5%.

The last major event of the week will be the U.S. Non-Farm Payrolls, which is the most important indicator for the labor market. Its release is accompanied usually by a strong market reaction and this time it won’t be different, considering the relationship between employment, inflation, and the interest rate. The release is scheduled for Friday at 1:30 pm GMT and the expected number is 200K, lower than last month’s 261K.

Technical Outlook – EUR/USD

The pair is currently trading above the previous resistance located at 1.0350 and it looks like this level will become support. If the price moves higher from here, then we can consider that 1.0350 is support, which would mean that the bulls will remain in control for the time being. If this is the case, the pair’s next probable destination will be 1.0500.

On the other hand, if the bulls fail to keep the price above 1.0350, we will likely see a drop toward the middle of the Bollinger Bands. The RSI is moving at the top of its range and could spark some bearish movement when/if it becomes overbought or if it shows divergence. Given the huge amount of data that comes out this week, the fundamental side may overshadow the technical one.