U.S. Inflation Steals the Spotlight After Mixed Jobs Data

EUR/USD Moves Above Resistance, Dollar Slips on Rate Speculation.

Friday’s jobs data was an interesting blend of higher-than-expected NFP with lower-than-expected Hourly Earnings, topped off with a disappointing Services PMI. As a result, the Dollar Index (DXY), which measures the greenback’s performance against 6 major currencies, weakened and rate hike expectations dropped.

There is now a 76.2% chance of a 25-bps hike at the next Fed meeting, according to CME’s FEDWATCH tool. The probability for a 50-bps hike is only 23.8% at the time of writing, according to the same tool.

This means that traders will pay special attention to Fed Chair Powell’s speech scheduled for Tuesday. At the same time, it increases the importance of the U.S. CPI numbers which are expected to show that inflation is slowing down.

Key Events for the Week Ahead

Tuesday at 2:00 pm GMT, Fed Chair Jerome Powell will take part in a panel discussion titled “Central bank independence and the mandate – evolving views” at a Central Bank Symposium in Stockholm. His tone and words will be thoroughly scrutinized by traders to see if he drops any clues about the next rate hike.

The main event of the week is scheduled for Thursday at 1:30 pm GMT: the U.S. Consumer Price Index. The year-over-year (y/y) figure is expected to drop from the previous 7.1% to 6.5%, while the Core y/y version is expected to drop from 6.0% to 5.7%. If the forecast comes true and inflation subsides, it would make a stronger case for the Fed to slow the pace of the rate hikes.

The last notable release of the week will be the U.S. Consumer Sentiment survey scheduled for Friday at 3:00 pm GMT. Consumer sentiment is tightly correlated with consumer spending, which in turn represents a big part of the entire economic activity, hence the importance of the indicator.

Technical Outlook – EUR/USD

The pair is currently trading at 1.0695, reversing a drop that touched the lower Bollinger Band. Last week we warned that the pair is getting ready to move south and that the lower band is a good target. As the chart shows, this also proved to be a great support and now we are dealing with a triple top around 1.0700.

Although the pair is printing an uneven triple top, the RSI is clearly declining (printing lower highs), thus showing divergence. This suggests that we might see further drops if the current move doesn’t break the previous highs.

In other words, if the rally fails at the upper Bollinger Band, we will probably see another drop toward the 50-day MA. A break of the upper band will increase the probability of a move above 1.0775.