EUR/USD weekly outlook: NFP charges the greenback
Hello traders and happy Friday. It's time for our weekly outlooks of major FX pairs.
First on the list is EUR/USD. The pair moved sharply lower today after strong NFP numbers from the United States (943K vs 870K expected) helped markets to reprice their Fed tapering expectations. Hawkish comments from the Fed Vice-Chairman Richard Clarida that the US is well on track to start policy normalization also supported the US dollar, which is now threatening the 1.1750 support level in the pair.
The rapid spread of the Delta variant and its impact on the global economic recovery prospects could also continue to underpin demand for the safe-haven dollar. In combination with the ultra-loose ECB, this doesn't look good for the pair.
The euro lacks important reports next week (except the German ZEW, expected lower). In the US, markets will be looking at CPI and PPI reports (both expected slightly softer), although market reaction might be rather muted in light of the upbeat NFP release.
As noted earlier, Fed's Clarida hawkish comments and a strong US labor market provided some meaningful support to short-end UST yields, which are now printing a strong bearish divergence with short-end eurozone yields. Despite the cautious tone of Fed's Powell at the last FOMC meeting, I expect that the Fed could announce a tapering timeline at the Jackson Hole Economic Symposium in late August (26-28).
And here is an overview of US Treasury yields for the last four months. The recent spike in short-end yields (bear flattener) underpins the market's cautious outlook on the global economic recovery in the long-term - another positive sign for the safe-haven dollar.
Risk reversals don't provide many insights for the next week, although options expires point at a modest upside risk. Large options expiries can act like a magnet for the spot price. Most of the time, the US dollar tends to give back some gains after a strong NFP release, so be prepared for a slight upside correction next week.
The daily chart shows a falling wedge formation but the apex looks still far away (fourth leg is forming.) The downtrend is now well in play with the lower range support (1.1750) acting as a major hurdle for further downside. Given the common USD weakness on Monday after a strong NFP release, and the pair printing almost 2xATR today, a pullback to the upper 1.17xx area (50% pullback of the recent down leg or 50% of the post-NFP range) could provide a better selling opportunity for shorter-term traders (1-hour chart).
The 1.17 level acts as a round-number and wedge-support target to the downside.
== SUMMARY ==
I remain bearish on EUR/USD and look for attractive selling opportunities on strength.
First on the list is EUR/USD. The pair moved sharply lower today after strong NFP numbers from the United States (943K vs 870K expected) helped markets to reprice their Fed tapering expectations. Hawkish comments from the Fed Vice-Chairman Richard Clarida that the US is well on track to start policy normalization also supported the US dollar, which is now threatening the 1.1750 support level in the pair.
The rapid spread of the Delta variant and its impact on the global economic recovery prospects could also continue to underpin demand for the safe-haven dollar. In combination with the ultra-loose ECB, this doesn't look good for the pair.
The euro lacks important reports next week (except the German ZEW, expected lower). In the US, markets will be looking at CPI and PPI reports (both expected slightly softer), although market reaction might be rather muted in light of the upbeat NFP release.
As noted earlier, Fed's Clarida hawkish comments and a strong US labor market provided some meaningful support to short-end UST yields, which are now printing a strong bearish divergence with short-end eurozone yields. Despite the cautious tone of Fed's Powell at the last FOMC meeting, I expect that the Fed could announce a tapering timeline at the Jackson Hole Economic Symposium in late August (26-28).
And here is an overview of US Treasury yields for the last four months. The recent spike in short-end yields (bear flattener) underpins the market's cautious outlook on the global economic recovery in the long-term - another positive sign for the safe-haven dollar.
Risk reversals don't provide many insights for the next week, although options expires point at a modest upside risk. Large options expiries can act like a magnet for the spot price. Most of the time, the US dollar tends to give back some gains after a strong NFP release, so be prepared for a slight upside correction next week.
The daily chart shows a falling wedge formation but the apex looks still far away (fourth leg is forming.) The downtrend is now well in play with the lower range support (1.1750) acting as a major hurdle for further downside. Given the common USD weakness on Monday after a strong NFP release, and the pair printing almost 2xATR today, a pullback to the upper 1.17xx area (50% pullback of the recent down leg or 50% of the post-NFP range) could provide a better selling opportunity for shorter-term traders (1-hour chart).
The 1.17 level acts as a round-number and wedge-support target to the downside.
== SUMMARY ==
I remain bearish on EUR/USD and look for attractive selling opportunities on strength.
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