On Friday the 25th of August, trading on the euro/dollar currency pair closed 1.02% up. Before Janet Yellen’s speech in Jackson Hole, the euro was trading around the LB balance line within a range of 1.1773 to 1.1828.
At the Federal Reserve’s annual conference, Yellen talked about financial stability and banking regulations. She gave no mention of monetary policy and there were no hints as to the likelihood of a further hike in interest rates this year. This triggered the opening of many short positions on the dollar. In its first growth spurt, the euro rose by 93 pips to 1.1890. After Draghi’s speech, this growth accelerated to reach 1.1941. The price then surged by another 60 pips.
Draghi also omitted any discussion of monetary policy from his speech. He talked instead about the economic recovery and how inflation levels remained below target. Draghi’s silence on the fact that the euro has grown significantly since the start of the year ( 13.7%) may have triggered its growth before trading closed. Investors interpreted his words as a sign that the exchange rate was not a problem for the regulator.
Day’s news (GMT 3):
- 11:00 Eurozone: M3 money supply (Jul), private loans (Jul).
- 15:30 USA: goods trade balance (Jul), wholesale inventories (Jul).
EURUSD rate on the hourly. Source: TradingView
On Monday the 28th of August, participants in the Asian session have shifted Friday’s maximum to 1.1960, after which a correctional phase began on the market. The euro rate fell to 1.1917 (-43 pips). At the time of writing, the euro is trading at 1.1930.
Considering that Monday’s economic calendar is virtually empty, the rate should ideally drop to the 67th degree (1.1878). Also, given that the Stochastic is currently down, but has reversed upwards, there is still a risk that the rate will return to 1.1963. Still, there’s nothing for buyers to hold onto as things currently stand.
The U3 MA line has been providing some resistance. If the price reaches this level, it will try to continue towards the LB balance line. Before this happens, though, we could see the price move upwards in a saw tooth formation and triple top model.
For a while, buyers didn’t dare move out of the range from the 2nd of August. However, Draghi and Yellen finally gave the euro an upwards boost and euro bulls now have 1.20 in their sights. In order to reverse the bullish trend, we need some negative drivers for the single currency and some positives for the greenback. At the moment, there are none, or if there are, the market’s ignoring them.
In my forecast, I’m expecting to see some growth to 1.1945, although we might see the formation of a double top. Here, we need to keep an eye on volume. There are plenty of alternative scenarios, but we should keep an eye on volumes as we approach key levels in order to get an idea of buyers’/sellers’ intentions. The 180th degree runs through 1.1963. Growth might stop here. It isn’t worth aggressively shorting the euro against the trend. If you’re going to sell, try to get confirmation from 2 timeframes (the one you normally work with and a higher one).