- EUR/USD is heavy below the 1.16 handle, embarking on Wednesday’s lows as the dollar pierces the 95.60 mark and US benchmark 10 yr yields harden within the 2.81-2.83% range for today.
- EUR/USD is currently trading at 1.1539 from a low of 1.1530 and off from the highs of 1.1599.
On Wednesday, EUR/USD was capped by the 50-D SMA up at 1.1609 and today’s business, on the flipside, the pair is testing the 21-D SMA and has broken below a key Fibo as being the 61.8% of August slide. It is a mixed bag today of data, geopolitics and central bank divergences, but eyes are on the yield spread as we move in towards Powell’s speech on Friday at the Jackson Hole. The break out levels in the spread for EUR/USD is 260bp at the year high vs 244bp as the tightest since May.
Politics, data and the Jackson Hole
On the political front, there are risks mounting up with the Turkish Lira crisis coming back to the fore today. The Lira has fallen today, back onto 6.11 handle from lows down at 5.9996 against the US dollar. The pair has traded as high as 6.1870 at the Lira’s worst levels on Thursday so far. Turkey has made a statement that the US is waging an ‘economic war’ – this follows Trump’s demands to release the US Christian pastor that is being detained by Ankara on espionage charges – The Turkish President Tayyip Erdogan’s spokesman said Washington must respect the legal process concerning the pastor. However, the implications of the Lira’s downfall are a contagion for the nation’s creditors and EM counterparts due to the Turkish economy’s excessive current account deficit and foreign-currency debt – and it weighs on the euro while the ECB frets about the potential impact the plummeting currency may have on Eurozone banks that are heavily exposed via large amounts in loans of which most of it will be hedged to euros.
On the other side of the coin, you now have the US political saga that has just turned a new page following the conviction of President Trump’s former campaign manager Paul Manafort, and the guilty plea of his former lawyer Michael Cohen. More on that here from analysts at ABN Amro. However, in short, “speculation has increased that the President may face impeachment proceedings should the Democrats win a majority in the House at the 6 November midterm elections” the analysts wrote, and that is going to anchor the greenback for the foreseeable future.
On data, EZ PMI stabilised at levels consistent with growth only a little above the trend. However, the data came with positives as well as negatives for the EZ economy. Aline Schuiling, a senior economist at ABN Amro reviews the data in detail here.
As for the Jackson Hole, Fed Chair Jay Powell will speak on “Monetary Policy in a Changing Economy” and his opening remarks are scheduled for 10 AM ET on Friday, August 24 where he may present an overview of how the Fed’s operational framework for monetary policy has changed and could evolve looking forward.
- Jackson Hole: Don’t expect a dovish Powell – CIBC
- Some useful context for Powell’s remarks to come at the Jackson Hole – Nomura
EUR/USD levels
“EUR/USD’s bounce off the November 2016 high at 1.1300 has so far tested and stalled at the 55 day ma at 1.1621”, noted analysts at Commerzbank who argue that the market will need to drop sub 1.1508 to alleviate immediate topside pressure: “Currently intraday Elliott wave counts are positive and near-term risk remains on the topside. Should a drop and daily chart close below the 1.1300/1.1296 November 2016 and mid-June 2017 highs be seen, however, we will assume a resumption of the down move and the 61.8% Fibonacci retracement of the 2017-18 rise at 1.1187 would be targeted.”
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