As a reminder, risk appetite in FX and equity markets improved after the Chinese authorities quelled a new surge in Covid cases, and the FDA granted full approval to the Covid-19 vaccines developed by Pfizer/BioNTech.
The decline in the dollar index was capped by a rise in US 10-year Treasury yields to 1.352% ahead of a meeting of representatives of central banks and finance ministers at Jackson Hole.
Today’s macro agenda (GMT 3)
- 14:30 Eurozone: ECB monetary policy meeting accounts
- 15:30 US: 2Q GDP and initial jobless claims
- Jackson Hole symposium gets under way
Current outlook
Major currencies moved lower during APAC trading. The Australian dollar (-0.14%) and the Canadian dollar (-0.21%) showed the steepest losses. Looking at the hourly TF, we can see the usual correction following dollar weakness during the North American session on Wednesday.
The trigger for a decline in the aussie and other major currencies may have been news about the pandemic. New Covid-19 cases in Sydney on Wednesday broke the daily record (1,029 vs. 919 the day before). The flareup is concentrated in Sydney and New South Wales (NSW). Two major overcrowded hospitals in Sydney were forced to stop admitting patients. Furthermore, the NSW lockdown was extended until September 10.
New Zealand also saw a major upturn in Covid cases - 68 vs. 63 a day earlier. Most of these cases occurred in the country's largest city, Auckland, although the capital Wellington is also affected.
The pandemic outlook remains tense. This implies negativity for commodity-linked currencies and oil, although it has temporarily faded into the background ahead of Fed Chair Powell’s speech scheduled for Friday. In addition, traders are wary of the Core PCE and Core PCE price index data as well as the Q2 US GDP estimate. These data points are pivotal to risk appetite in the run-up to Powell's speech.
Technical analysis
By the time of writing, the single currency was trading at 1.1765. Upside stalled at the 90- degree angle of the Gann fan. The road to the resistance zone 1.1790-1.1800 is open for the euro bulls. The faster they can breach 1.1785, the higher the odds that the single currency will extend its recovery above the 1.1800 handle.
Support lies between the 1.1745 and 1.1750 levels. Given that euro crosses are trading in the green, the probability of an extension of yesterday's gains is over 70%. The bulls still have time to test the 1.1800 level (112-degree angle).
The euro recovered 1% from a low of 1.1664. A local bullish trend has shaped up on the hourly TF, while the Stochastic Oscillator looks buyer-friendly, sending out a bullish signal for the current trend. If, within the next 3-4 hours, price action does not retrace to 1.1775, the bulls may start closing long positions ahead of the US Q2 GDP print, as it is expected to be upwardly revised from 6.5% to 6.7%.