Big Week Ahead

Quiet flows are expected today as we kick off a busy data week with a muted Monday schedule. Looking ahead this week we have Canadian CPI, UK CPI, the September FOMC, September SNB and BOJ meetings, as well as a slew of US, UK and eurozone PMI readings. The main focus this week will of course be the September FOMC meeting. While the Fed is widely expected to hold rates unchanged, traders will be keen to see how the bank lays out its forward guidance along with receiving the update dot plot forecasts.

Hawkish Fed Risks

Hawkish risks are building on the back of recent data. The August NFP and CPI readings both came in well above forecasts, as did retail sales. Given that weaker US data had been one of the key drivers behind the argument for an end to Fed tightening, the recent uptick in data suggests that the Fed might well see the need to hike further this year. If such guidance is laid out, particularly if it’s confirmed by the updated dot plot forecasts, this will likely see USD trading firmly higher.

EURUSD Vulnerable to a Drop Lower

Given the recent shift in tone from the ECB, this makes EURUSD particularly vulnerable to a drop lower. With the ECB signalling a likely end to its own tightening campaign, EUR has come under fresh selling pressure, making it an easy target for resumed USD longs.

Technical Views

EURUSD

The sell off in EURUSD has seen the market breaking down below the rising trend line and the 1.0785 support level. A retest of the level from below has held for now and, while this remains above as resistance, the focus is on a further move lower in line with bearish momentum studies. To the downside, 1.0515 is the next support to watch.