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On Friday August  25th, 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).
EUR/USD rate on the hourly. Source: TradingView
On Monday, 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 67thdegree (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.
