The week ahead is notable for its lack of ‘high impact’ economic data and events. With this being the case, lower ensuing volatility tends to favour higher yielding currencies
Markets price in two 25 basis point rate cuts with a decent possibility of a third before year end, 66 basis points worth of cuts in total. The ECB prefers to follow Fed policy but contrasting economic conditions and inflation profiles mean the ECB is likely to have to go at it alone this time.
EUR/USD rose notably after US CPI headed back down once more. A spate of hotter-than-anticipated monthly price rises has markets concerned that the ‘last mile’ of the disinflationary process could extend into persistently hotter inflation.miss was followed by an unusually high initial jobless claims figure. The combination signalled an early sign of easing in the labour market – something that could substantiate the view that US rates ought to be lowered if the data worsens from here.
However, the recent move was relatively sharp and next week’s lack of high importance data suggests that the dollar may return to favour. In lower volatility conditions, FX markets tend to flow towards higher yielding currencies. Suggesting EUR/USD may head lower in the week to come.if the bearish move materializes, which may form an area of confluence support as the 1.0795 and 200-day simple moving average lie just beneath.
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