EURUSD Rate Reverses Ahead of Monthly-Low Following Fed Symposium

EUR/USD Rate Talking Points

EURUSD retraces the decline from earlier this month even as Federal Reserve officials tame speculation for a rate easing cycle, and the exchange rate may continue to consolidate over the remainder of the month amid the failed attempt to test the August-low (1.1027).

EURUSD Rate Reverses Ahead of Monthly-Low Following Fed Symposium

EURUSD catches a bid following the Fed Economic Symposium in Jackson Hole, Wyoming even though Chairman Jerome Powellwarns monetary policy “cannot provide a settled rulebook for international trade.”

The comments suggest the Federal Open Market Committee (FOMC) is in no rush to implement lower interest rates, and it remains to be seen if the central bank will reverse the four rate hikes from 2018 as the US economy shows little indications of an imminent recession.

In fact, recent remarks from Kansas City Fed President Esther George, a 2019-voting member on the FOMC, indicate that the central bank will revert back to a wait-and-see approach as the policymaker insist that “we’re in a good place as long as the consumer can continue to pull the economy forward.”

Image of DailyFX economic calendar

In turn, Fed officials may closely watch the fresh updates to the Durable Goods Orders report as demand for large-ticket items is expected to increase 1.2% in July after expanding 1.0% the month prior.

Image of Fed Fund futures

A positive development may encourage the FOMC to buy more time after delivering a rate cut in July, but signs of a slowing economy may produce headwinds for the US Dollar as Fed Fund futures now reflect expectations for at least a 25bp reduction on September 18.

As a result, the FOMC may have little choice but to insulate the economy from the shift in trade policy, and the central bank may continue to adjust the forward guidance as Fed officials are slated to update the Summary of Economic Projections (SEP) in September.

With that said, the monthly opening range sits on the radar for EURUSD, and recent price action raises the risk for a larger rebound in the exchange rate amid the failed attempt to test the August-low (1.1027).

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EUR/USD Rate Daily Chart

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Source: Trading View

  • The broader outlook for EURUSD is clouded with mixed signals as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with the 1.1100 (78.6% expansion) handle no longer offering support.
  • Will keep a close eye on the Relative Strength Index (RSI) as the oscillator comes up against trendline support, with a break of the bearish structure raising the risk a larger rebound in EURUSD.
  • The failed attempt to test the August-low (1.1027) has pushed EURUSD back above the 1.1140 (78.6% expansion) pivot, with the Fibonacci overlap around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement) now on the radar.
  • Next area of interest comes in around 1.1270 (50% expansion) to 1.1290 (61.8% expansion) followed by the 1.1340 (38.2% expansion) region.

For more in-depth analysis, check out the 3Q 2019 Forecast for Euro

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.