- EUR/USD bulls seeking upside extension on ECB/Fed convergence prospects.
- Technically, the price is now moving towards consolidation.
EUR/USD was ending Wall Street half a cent lower from the spike highs of the day as the greenback firmed last minute.
EUR/USD was near 1.1800 by the closing bell, below the 1.1845 highs and off the 1.1793 lows.
The single currency picked up a bid following inflationary pressures reported in the Euro Area with the flash CPI estimate for August coming out hotter than expected, (3% vs 2.5% exp and 2.2% prior).
This was sinking the DXY due to the prospects of the convergence between the European Central Bank and the Federal Reserve.
ECB’s Philip Lane was a key takeaway from the Jackson Hole, basically, promising to calibrate the QE program to financial conditions BOTH in an upwards and in a downwards direction.
This currently means that the recent new all-time lows seen in EUR real rates could be used as an argument to tone down PEPP-purchases, potentially as soon as September.
The message can be construed as hawkish and the equivalent of a taper and might be expected to continue to weigh on the greenback for the foreseeable future.
The US dollar has struggled since Federal Reserve Chair Jerome Powell's said that there is an explicit disconnect between lift of and tapering and that there was in no hurry to raise interest rates nor to taper.
The DXY index dropped to a low of 92.403 in London trade, its lowest level since Aug. 6.
Fed Chairman Jerome Powell made very clear, again, that while the Fed has probably got to the point where “substantial further progress” has been made on inflation, there is ''much ground to cover to reach maximum employment”.
This makes this week's US data candler even more critical with the main focus on the US jobs market.
Wednesday's Manufacturing PMIs as well as the ADP jobs report and then Jobless Claims also have the potential to stir up volatility before Friday's Nonfarm Payrolls showdown.
In terms of what to expect, Deutsche Bank US economists think that ''the pace of hiring will slow somewhat after the strong report in July, but the +700k increase in nonfarm payrolls that they’re forecasting should be more than sufficient to keep the Fed on track to announce tapering at the November FOMC meeting.
In turn, that jobs growth should see the unemployment rate fall to a fresh post-pandemic low of 5.2%.''
''If the outlook changes and the US economy slows significantly, then it would be a likely game-changer for the dollar,'' analysts at Brown Brothers Harriman warned.
EUR/USD and DXY technical analysis
Bulls failed to close above 93.50 for month-end and last week. This leaves the downside exposed on disappointing US data this week.
At this juncture, DXY could be looking into the abyss from a longer-term perspective:
Meanwhile, EUR/USD is on track to break higher in the 1.18 area and towards 1.19 the figure:
The wick that has been left on the daily candle could well be fille din on the lower time frame sin sessions to come so long as the 4-hour support holds:
However, considering the Tweezer Top and the 38.2% Fibo confluence, there are risks of a meanwhile hourly trip to the downside for the immediate future:
In such amove, consolidation would be the most likely scenario into the next sets of key US data.
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