- EUR/USD’s rally has been capped in the 1.1730’s as the greenback battles for lost ground on the day, currently testing through 94.70 off the 94.43 lows.
- EUR/USD is currently trading at 1.1698 and testing the rising 21-hr SMA having been marked by hourly momentum oscillators as oversold for the best part of the day.
EUR/USD has been paring back shorts, fulled by Trump’s dissatisfaction with the Fed’s rate hike policy and Powell’s speech that was arguably sending a dovish message to markets. However, there is little fundamentally supportive of a long euro position given the political instability in the eurozone and fragility of the economy.
EUR/USD carry favours the left-hand-side of the quote, long dollars
At the same time, there is around a 0.25% monthly carry advantage on the short side of EUR/USD and given how speculative the long positions have been, should the dollar manage to attract positive flows again, a top around the 100-DMA and daily Ichimoku cloud in the July/August highs at 1.1740-60 is foreseeable and this move may well be the start of that as we move into end of month business.
Data dependent Fed and ECB
Data will be key on a data dependent Fed and ECB in the absence of political and trade risks. Given Turkey and Italy has been put on the back burner for the time being, (but will not be too long before those risks rear their ugly head again – the submission of the Italian budget approaches (end-September to parliament), and that is risk sensitive stuff (euro bearish), depending on how aggressive the 5Star/League coalition will approach their controversial spending plans). Also, given how trade risks are back in the limelight, (dollar positive), on strong US data such as today’s Conference Board’s August consumer confidence report that smashed expectations at an 18-year high, the pair may well struggle ahead of the FOMC September meeting where a rate hike will remind investors of the macroeconomic disparity between the eurozone and U.S. = yield spread negative, EUR/USD bearish. (Note: analysts at Nomura tell us that the bond market is already pricing the largest macroeconomic divergence between the U.S. and Europe since 1999).
EUR/USD levels
However, Valeria Bednarik, chief analyst at FXStreet argued earlier that the short-term picture for the pair was bullish, although warning that a downward corrective movement can’t be dismissed. Whether this is that start of that correction is yet to be seen, but as Valeria noted, in the 4 hours chart, the Momentum indicator started to retreat from overbought readings, while the RSI decelerated and that has now moved below overbought territory.
More downside needs to follow in order to convince the bulls it is time to throw in the towel and as Valeria explained, “in the mentioned chart, the 20 SMA maintains a strong bullish slope after crossing above the larger ones. The pair has now an immediate resistance around 1.1745, a level that failed to surpass multiple times during the past July, with only one peak beyond it at 1.1790, the next resistance. Gains beyond this last should indicate a more sustained EUR demand.”
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