EUR/USD is clinging to last week’s low ahead of FOMC mins, US CPI

Market pricing appears to be sobering up and has done away with 50bp Fed cuts. It took a while longer than I expected, but Fed fund futures are now backing the 25bp November and December cuts the Fed effectively telegraphed at their last meeting.

It could be argued pricing still remains too dovish for next year, and EUR/USD may have further to fall should US data continue to outperform expectations while the ECB up their dovish rhetoric. Two risk events this week to keep an eye on include the FOMC minutes today and US CPI report tomorrow.

Should the minutes reveal more divisions within the ranks over future easing, yields and the USD could strengthen. I am not expecting a strong set of inflation figures tomorrow, but that could come as a nasty surprise to USD bears. In all likelihood, I feel the USD could do a minor pullback before its bullish move from last week extends, and that could eventually see EUR/USD head for the 1.09 and 1.08 handles.

EUR/USD futures market positioning – COT report:

Large speculators increased bearish bets against the euro for a third week, and trimmed longs for the third week out of four. Whereas asset managers increased gross longs for a fourth week and trimmed longs for a third week out of four. This saw a slight reduction of net-long exposure from both traders, and to their least bullish net exposure in seven weeks.

This is not overly bearish positioning, although large speculators are much closer to flipping to net-short exposure with a net-long exposure of 55.3k contracts, compared to the 294.3k from asset managers. But I suspect net-long exposure has diminished further as EUR/USD continued to weaken from Wednesday through to Friday after the COR data was collected. We have also heard more support of easing from some ECB members.

EUR/USD technical analysis (weekly chart):

The surge of USD strength resulted in EUR/USD forming an elongated bearish engulfing / outside week, during its worst week in 25. It also closed beneath its 200-week average. And its selloff did not come without warnings, given its repeated failure to close above 1.12 in the weeks ahead of the reversal lower.

Also note that EUR/USD fell 11 consecutive weeks from the 2023 high during a 7% decline, a level it has failed to retest since. A bearish hammer formed below the 200-week MA in December, and a dark cloud cover reversal also formed around the recent highs in August. The weekly RSI (2) is not yet oversold, and if US data outperforms while the ECB tout cuts, we could be looking at further downside.

Perhaps a move to 1.08 I snow on the cards. It is around the centre of the sideways range since 2023, and just 50 pips beneath the high-volume node (HVN) of that time span. Prices are also less than last week’s bearish range away from it.

EUR/USD technical analysis (daily chart):

Prices are trading within a tight consolidation around last week’s lows. The longer it can hold around current levels, the odds of a bounce increase in my view. For now, the 1.10 handle and 1.1021 low are capping as resistance, ahead of the release of the FOMC minutes and UC CPI report tomorrow.

A break above 1.1021 assumes a small countertrend move, but for now I doubt it will break above the 200-week MA, just below 1.1050. And that makes it a resistance zone for bears to consider fading into, in anticipation of a move towards 1.09, just a above the 200-day MA. A break beneath which brings the 1.0800/50 zone into focus for bears.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.