EUR/USD in the crossfire of Presidential debate, US CPI and ECB: The Week Ahead

EUR/USD has managed to recoup some of last week’s losses as we head into Friday’s nonfarm payroll report. But for it to stand any chance of to a fresh YTD high, US CPI likely needs to continue softening and the ECB surprise with a less-than-expected dovish cut on Thursday.

The weekly chart shows that EUR/USD is holding above a 38.2% Fibonacci ratio and considering breaking back above its December high. It we see a daily or weekly close above it, an attack on the December high seems feasible given it is only another 50 or so pips above it.

But what if US CPI failed to roll over and the ECB strike a more hawkish tone? Then we could find that any rally towards the August high becomes tempting for bears to fade into. Ether way, EUR/USD appears to be at a crossroads as we head towards the weekend.

The Week Ahead: Calendar

The Week Ahead: Key themes and events

• Presidential debate
• US inflation
• ECB interest rate decision

Presidential debate (Tuesday)

It is debatable as to how much impact the Presidential debate will have on markets next week, although it is one of those ‘must watch’ events regardless (for possible entertainment purposes, if nothing else). Currently, this is currently the only planned debate although Trump continues to push for three. And desire (or lack thereof) for further debates could change depending on how this one goes.

• Tuesday 21:00 ET
• Wednesday 01:00 GMT
• Wednesday 11:00 AEST

We largely know what we’re getting with Trump regarding policies and approach to such events. This will be Kamala’s first debate, and that could really go either way for her. Trumps votes are also likely already baked into the numbers, making it a ‘make or break’ situation for Kamala, who needs to define herself to the swing votes. And for that I suspect she’ll try hard to appeal to small businesses, given her ambition plan for 25 million small-business applications.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones, VIX, bonds

US inflation (Wednesday)

I write this ahead of an all-important NFP report, has the potential to spark recessionary fears if the numbers disappoint by a wide enough margin. And if they do, it will take the strong out of the next inflation report.

But if inflation continues to soften, it will further bolster dovish-Fed bets, particularly if core CPI dips to 3% or ideally lower. If there are to be any surprises they would likely show up in the monthly reads. But even at 0.2%, both the monthly CPI reads are below their long-term averages. With as print of 0.1% or lower pointing to weaker prints for the annual figures further out.

Also note that producer prices and US consumer sentiment are released on Thursday and Friday respectively. A soft set of inflation figures alongside a deterioration of confidence would bring the ‘hard landing’ scenario back to the forefront, which could weigh on Wall Street indices.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones, VIX, bonds

ECB interest rate decision (Thursday)

It is practically a given that the ECB will cut their benchmark rate by 25bp on Thursday to 4%, with market pricing and economists backing the move. In fact, a Reuters poll also revealed that 83% of economists surveyed expect them to cut again in December. That means they’re looking past recent headlines that some ECM members have very opposing views of the futures path of rates, with some fearing a recession whereas others feel upside inflationary pressure remain. It therefore seems likely that the ECB may deliver a cautious tone when they cut in September and keep their cards to close their chests regarding futures cuts.

Trader’s watchlist: EURUSD, EUR/JPY, EUR/GBP, EUR/CHF, DAX, STOXX

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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