EUR/USD – Drifting Lower Ahead of a Big Week for the US

This could be a pivotal week for the US at the start of what is a huge year for the world’s largest economy.

The focus now be on inflation and interest rates but it won’t be long until the topic of conversation becomes the Presidential election in November and the former may go some way to influencing the outcome of the latter.

Markets have become less certain about when the process of cutting interest rates will begin, as well as how fast they’ll fall, and this week could offer some insight on both.

The Federal Reserve meeting on Wednesday is widely expected to not be the point when rates will start falling but if March is a real possibility, this week could be the point at which the central bank hints at such a move.

Then there’s the jobs report on Friday, which will tell us how well the US economy has started the year and whether the softest of landings is on the cards. The labor market has remained strong throughout the tightening process but if wage growth continues to subside alongside inflation, it will give the Fed the green light to start lowering the Fed Funds Rate.

Bearish momentum building?

EUR/USD has fallen at the start of the week and appears to have gained some momentum at the same time after having shown signs of divergence in recent sessions.
It does appear to have run into support around 1.08, near the 50% Fibonacci retracement level – October lows to December highs – which will be an interesting test. If the divergence was still intact, I’d be more convinced about its ability to hold but as it is, it could be difficult.

This also feeds into the picture on the 4-hour chart where a head and shoulders breakout occurred a couple of weeks ago. The price hasn’t significantly extended to the downside since, not even to the extent of the shoulder being projected below the neckline, let alone the head. Perhaps the latest shift in momentum will boost the possibility of either or both happening.

EURUSD 4-Hour

Original Post