Last week, all the major currencies gained ground against the US dollar except for the yen. The biggest mover was the euro ( 1.60%). The Swiss franc rose by 1.22%, the Kiwi dollar by 0.81%, the pound by 0.77%, the loonie by 0.28%, and the Aussie dollar by 0.13%. The yen, on the other hand, shed 0.69% against the dollar.
Fig 1. Dynamics of USD exchange rates for the week
On Friday, trading on the euro closed up. The single currency rose by 110 pips to reach 1.1640. Market participants shorted the dollar in response to Jerome Powell’s speech at the Jackson Hole symposium, having concluded that his performance was too pessimistic.
Powell stressed the need to continue along the current trajectory of gradual rate hikes in order to protect the economy, control inflation, and maintain a low level of unemployment. Cleveland Fed chief Mester also voiced her support for gradually raising interest rates in the US.
St. Louis Fed chief Bullard added fuel to the fire after stating that he thought the Fed should stop raising interest rates. He believes that the fallout from Trump’s tax cuts will come to an end next year, which will cause economic growth to slow, which in turn will bring inflation under control.
Another potential negative for the dollar and positive for the euro was the sharp 1.3% rise on the yuan, taking its value up to 6.80. The People’s Bank of China took the unexpected decision to resume using the counter-cyclical factor to support the yuan’s value, which it had suspended in January. Maybe some kind of agreement was reached at the recent talks after all.
The US and China concluded two days of trade talks last week, in which they exchanged ideas on how to instill trust, balance, and reciprocity in their economic relations. Still, there’s no indication as to whether the parties managed to reach some kind of consensus on how to address their current problems. If Trump proposes imposing further levies on Chinese goods, I think we can safely say that no agreement has yet been reached.
Durable goods orders (Jul): -1.7% (forecast: -0.5%, previous: 0.7%).
Day’s news (GMT 3):
- 11:00 Germany: IFO – expectations (Aug), IFO – business climate (Aug), IFO – current assessment (Aug).
- 15:30 US: Chicago Fed national activity index (Jul).
- 17:30 Canada: BoC review.
Fig 2. EURUSD hourly chart
The fundamentals had a bigger impact on Friday’s trading than technical factors. The pair mounted an initial recovery to the LB balance line at 1.1572 before rising further to 1.1640 in the US session. This rise came to an end at the 90th degree.
In this morning’s Asian session, the bulls have pushed past Friday’s high to reach 1.1653. I reckon that following Friday’s rally, we’re going to see another triple top model form, like the one we had on the 21st and 22nd of August. Moreover, the upper boundary of the channel on the daily timeframe runs through 1.1670, which will act as a resistance during the first half of this week.
The weekly candlestick closed up. If the bulls manage to bring the rate up to 1.1700 this week, this will set up a reversal formation on the weekly timeframe. Given that today is Monday, following Friday’s rally, we can consider shorting the euro from around 1.1660/1.1665.