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The ISM Non-Manufacturing Index nicely beat expectations last week, and it was all that the greenback needed to kick-start a rally from 3-month lows in the Dollar Index. The other US data released over the past week also held up well and confirmed that the US economy is still performing better than its major peers.

 

However, with the US-China trade talks at a pivotal make or break point, it seems possible and even reasonably likely that currencies will stay in broader ranges this week. Although trade uncertainty has not hurt the Dollar in the past 1-2 years and is unlikely to do so now, it is a front to watch because it has contributed to many unexpected risk-on or risk-off moves across all Fx pairs.

 

Powell will testify before Congress on Wednesday and Thursday, and several Fed members will speak throughout the week also. If they confirm that the Fed is done with cutting rates, then the Dollar will likely find some further support. 

 

CPI inflation and retail sales are due on the calendar this week, and strong numbers will certainly be beneficial to the greenback. Maybe only gradually, but it seems that the USD can extend the broad rally it started last week into this and the following weeks.
 

The Euro was among the weakest currencies last week with the largest losses recorded versus the US Dollar. As we noted in our previous weekly analysis, the technically driven positive sentiment was likely to fade, and indeed, that has happened.

 

Most of the economic data that was released over the last week was mixed, however, it remains broadly on the weak side, and that continues to pressure the Euro. The EU commission also lowered the forecasts for GDP and inflation in their latest report published last week. 

 

Over this week, the ZEW Sentiment index and GDP from Germany will be released. It is expected German GDP to confirm that the largest EU economy has entered a technical recession. Further, CPI inflation (Final) for the whole Eurozone is due on Friday. With already low expectations for all the reports, any disappointments in the actual releases should only add to the bearish pressures on the Euro.
 

The technical situation on EURUSD has turned bearish again, though, with the 1.10 area so close to the current price, it’s difficult to say whether this bearish move can extend much lower.

 

From the weekly chart, we can see that the pair bounced at this area several times in recent months. However, we can also see that the downward channel is intact. As per this channel, EURUSD should revisit the lows at 1.0875, and even exceed them, but support will be getting stronger toward 1.0800.

 

All in all, it’s important to be careful in such situations of conflicting bearish and bullish signals. In the end, EURUSD may range-trade for a while here before either going above 1.12 or below 1.10.
 

Thank you again and we are looking forward to sharing our weekly insights with you