USD Weekly Forecast: Solid Jobs Report Supportive of U.S. Dollar and 75bps Rate Hike
EUR/USD Price, Chart, and Analysis
- Market pricing expects a 75 basis point hike.
- Any dovish disappointment will see the Euro tumble.
The European Central Bank meeting next Thursday is likely to see the central bank hike rates by 75 basis points to 1.25% in an effort to stem sky-high inflation. The decision, and subsequent press conference, will go a long way in shaping the performance of the single currency in the weeks and months ahead. The idea of a 75bp hike would have been laughed at a few weeks with the ECB expected to move in increments of 25bps but with inflation continuing to ravage the single block, the central bank now looks likely to front-load rate hikes as quickly as possible.
G7 finance ministers are said to be ready to impose a price cap on Russian oil, according to a range of market reports. The idea, to crimp Russian oil revenues in retaliation to Russia’s invasion of Ukraine, is also needed to push down soaring energy costs across the globe, a major component of headline inflation readings. While the G7 countries are likely to approve a plan to cap prices, Russia has already said that it will not sell to countries imposing the cap, leaving the outcome of the G7 move uncertain in the short term at least.
While the ECB meeting is the main focal point for Euro traders next week, the third look at Euro Area Q3 growth will be released on Wednesday. Growth in the block is anemic at best and while the second estimate for Q3 was the strongest reading for three quarters, a 0.6% growth rate doesn’t inspire confidence.
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With the latest US NFP report fairly much in line with market expectations, the fate of the Euro, and EUR/USD, lies firmly in the hands of the ECB next week. A 75bp hike and a hawkish press conference should see EUR/USD move back above parity, while a 50bp increase will see the pair tumbling back towards 0.9900 and lower. On the monthly chart, three monthly lows made in late 2002 bottoming at 0.9610 would seem the next logical target for the pair if 0.98475 is broken.
EUR/USD Monthly Price Chart September 2, 2022
Retail trader data 67.86% of traders are net-long with the ratio of traders long to short at 2.11 to 1. The number of traders net-long is 4.85% higher than yesterday and 7.40% lower from last week, while the number of traders net-short is 11.70% lower than yesterday and 3.89% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.
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