Week Ahead: Can EURUSD’s uptrend stay intact?

Firstly, please note that this Week Ahead preview is being written before Fed Chair Jerome Powell’s highly-anticipated speech out of the Jackson Hole Economic symposium due later today (Friday, August 25th).

Still, the astute trader and investor will already be casting a glance at what’s in store post-Jackson Hole.

The monthly US jobs report, typically released on the first Friday of every month, is set to hog the limelight next week.

This tier-1 data out of the world’s largest economy will arrive at the tail end of a week that also features these other major economic data releases and events:

Monday, August 28

• AUD: Australia July retail sales
• USD: US August manufacturing activity
• UK markets closed

Tuesday, August 29

• JPY: Japan July unemployment
• USD: US August consumer confidence

Wednesday, August 30

• AUD: Australia July CPI
• EUR: Germany August CPI; Eurozone August economic confidence
• USD: US 2Q GDP (2nd estimate)

Thursday, August 31

• JPY: Japan July retail sales, industrial production
• CNH: China August manufacturing, non-manufacturing PMIs
• EUR: Eurozone August CPI; July unemployment rate; ECB meeting minutes
• USD: US weekly initial jobless claims; July PCE deflator, personal income and spending

Friday, September 1

• CNH: China Caixin August manufacturing PMI
• EUR: Eurozone August manufacturing PMI (final)
• GBP: UK August manufacturing PMI (final)
• CAD: Canada 2Q GDP
• USD: US August nonfarm payrolls
• USD: US August ISM manufacturing

 

EURUSD traders will be keen to find out how the official prints for the following data releases will match up with current market forecasts as stated below:

1) Wednesday, Aug 30: Germany August consumer price index (CPI)

• Year-on-year CPI (August 2023 vs. August 2022): 6%
   
• Month-on-month CPI (August 2023 vs. July 2023): 0.2%

If so, both prints would mark a slight easing from July’s CPI figures.

Note that Germany is the largest economy in the Eurozone, and its CPI prints tend to front-run the broader Eurozone’s CPI release.

 

2) Thursday, Aug 31: Eurozone August CPI

• Year-on-year CPI: 5%
   
• Month-on-month CPI (August 2023 vs. July 2023): 0.3%
   
• Year-on-year core CPI (excluding food and energy prices): 5.3%

While such numbers would mark a moderating in inflation, 5% CPI is still noticeably higher than the European Central Bank’s (ECB) 2% target, which could warrant more rate hikes.

 

3) Thursday, Aug 31: Eurozone July unemployment rate (forecast = 6.4%)

If so, this would match the unemployment rate in June.

 

Still, ECB policymakers will only be too aware of the deteriorating economy.

The Eurozone’s manufacturing and services sectors each posted sub-50 PMI readings this past Wednesday (August 23rd).

When the PMI number is below 50, that means the sector is experiencing contracting conditions.

Such concerning figures prompted markets to pare down their expectations for another 25-basis point hike by the ECB before 2023 is over.

Those odds have been slashed from 78% this time last week, now down to a 57%.

Hence, the ECB meeting minutes due to be released on August 31 may already be dated, seeing as that July meeting was held prior to releases of the above-listed economic data.

 

Then, on the USD side of the equation …

Markets will want to know if the US labour market remains resilient, as evidenced by the highly-anticipated US jobs report, despite the Fed’s aggressive rate hikes since 2022.

 

4) Friday, Sept 1: US August jobs report

• Change in nonfarm payrolls: +168,000

If so, that would be the fewest number of new jobs added in a month since December 2019.
 

• Unemployment rate: 3.5%

If so, this would match July’s unemployment rate.

 

• Average hourly earnings: 4.3% year-on-year and 0.3% month-on-month

If so, that would be a slick tick down of 10 basis points respectively from July’s figures.

 

Markets currently place a 55% chance that the Fed will trigger a 25-basis point hike in November, after pausing at its September policy meeting.

Of course, Chair Powell’s commentary out of Jackson Hole could significantly alter that perception.

Still, with the Fed already pledging to remain “data dependent”, a set of better-than-expected jobs data on September 1st could embolden the FOMC hawks (voting officials at the Federal Reserve who want to hike US rates further), and boost the US dollar along the way.

 

 

POTENTIAL SCENARIOS:

Ultimately, markets are set to reward the currency of the economy that can better handle another rate hike from its central bank.

• EURUSD could move higher if the Eurozone’s CPI comes in higher than expected, while the US jobs market appears to be waning.

• EURUSD could move lower on the stronger US dollar if the Eurozone’s CPI comes in lower than expected, and/or a higher-than-expected unemployment rate, along with a US jobs market that’s still resilient.

 

 

From a technical perspective …

To be fair, EURUSD is still adhering to a uptrend, maintaining a series of higher highs and higher lows so far this year.

However, EURUSD is now caught up in its 3rd “correction” wave on the daily timeframe so far this year.

Each wave has marked a decline of over 4%, with the latest declines commencing from its July 18th intraday peak extending past 4.4% at the time of writing.

And there are other bearish signs in play currently for EURUSD:

• now trading below the widely-watched 200-day simple moving average (SMA) for the first time since end-November 2022.
   
• 21-day SMA has crossed below its longer-term 100-day counterpart.

 

Currently, Bloomberg’s FX model points to a 73% chance that EURUSD will trade within the 1.0661 – 1.0920 range over the next one week

(forecast is prior to Fed Chair Powell's Jackson Hole speech)

 

Here are some key levels to look out for:

POTENTIAL SUPPORT

• 1.0766: lower trendline of uptrend/mid-March peaks
   
• 1.068 region: resistance turn support zone since December
   
• 1.0661 – 1.06352: lower bound of Bloomberg model forecasted range / end-May cycle low

 

POTENTIAL RESISTANCE

• 200-day SMA
   
• 1.08353/37: lows in end-June/early July
   
• 1.0920: upper bound of Bloomberg model forecasted range, also with 100-day and 21-day SMAs lurking nearby

 

Brace for technical rebound?

The 14-day relative strength index (RSI) for the world’s most-traded FX pair is now flirting with the 30 mark, which denotes oversold levels.

Note that the bottom of the prior 2 “correction” waves have also coincided with such levels for the RSI.

Of course, fundamental factors surrounding the ECB vs. Fed’s next policy moves would greatly dictate whether EURUSD’s uptrend will be upended as we head into September.

Still, a technical rebound may be on the cards over the near term to perhaps offer some relief for euro bulls.