In anticipation of Fed Chairman Powell’s testimony before Congress today and tomorrow, investors are betting that negative jobs data will significantly increase the probability of a September rate cut to around 80%.
The market is pricing in a high probability that Thursday’s CPI will confirm that disinflation is back on track.
Looking at the US economy, most of the data is softening. Friday’s employment data was weak, while unemployment is trending higher. Most leading labor market indicators are slowing.
The main economic event this week will be the US consumer prices report, where headline inflation is expected to slow to 3.1% in June from 3.3% in May, and core inflation is expected to remain at 3.4%.
For the rest of 2024, markets have fully priced in a total of 50 basis points of easing, equivalent to two rate cuts. Such a scenario weakens the US dollar, particularly against the euro.
As for the European currency, it is holding its ground after Monday’s sharp swings due to the suspension of the results of the French parliamentary elections, which points to a possible political stalemate, but removes many of the fiscal risks that would result from a victory by the far right or far left.
Summing up the current situation, EURUSD is set for further strengthening. From a technical point of view, the pair is slightly overbought, and after the corrective pullback to the 1.0800 level, it is possible to consider buying again.
The final recommendation is to buy EURUSD after the correction starting from the level of 1.0800.
Take profit at the level of 1.0850. A stop loss could be set at 1.0770.
The size of the possible loss should not exceed 2% of your deposit funds.
