On August 18 the EUR/USD pair looked to be recovering from the effects of Brexit. It traded from 1.1285 to 1.1364, opening and closing at 1.1288 and 1.1352 respectively. It’s just a few pips away from June 24’s intraday high of 1.1426. This seemed to be the silver lining after the darkness induced by the Britain’s decision to leave the European Union, but it is very vulnerable and easily taken away.
Just when Euro seemed to be reaching its highest yet since the June’s vote, Yellen’s speech at Jackson Hole, Wyoming pulled the currency lower once again. Eight days after that almost post-Brexit high, on August 26, Fed Chair Janet Yellen spoke at a symposium about the positive US economy conditions — the labor market was approaching maximum employment, inflation was steady, and consumer spending remained solid. Fed President Fischer supplemented that Yellen’s comments are consistent with a rate hike in September. Presently Fed Fund futures also had an interest rate increase pegged for December, with a 44% chance that rates will be between 0.5%-0.75% basis points and an 11% chance rates will be between 0.75%-1.00%.
The good numbers and comments from Feds have boosted investors’ confidence that two rate hikes before the end of the year is indeed possible, pulling the dollar up in the charts and further pulling down other currencies.
Euro’s initial reaction to Yellen was a spike to test August highs reaching 1.1340, but pretty soon it reversed sharply, falling more than 150 pips from the highs. It bottomed to the lowest level it had been in two weeks, at 1.1179 as Fed officials strengthened the dollar in anticipation of a near-term rate hike.
Last Wednesday, Euro showed little movements, as it gained an intraday high of 1.1164 and intraday low of 1.1121, but closed on the green. This is a very busy day in Europe and the US. German numbers were sharp, as Retail Sales was at 1.7%, its strongest in over a year, and Unemployment Change at 7,000, beating the 2,000 expectation.
Inflation in the Eurozone remained weak, although this week’s releases were close to the estimates, so the euro showed little reaction. German Preliminary CPI dropped to 0.0% in August, down from 0.3% a month earlier, while Eurozone CPI posted a small gain of 0.2% YoY in August, almost to the estimate of 0.3%. These weak numbers pressures the European Central Bank to unleash additional monetary policy measures in order to revive economic growth in the Eurozone.
At the time of writing, Euro is trading around the 1.1142 handle. Its highest so far is at 1.1164, almost going over the 1.1170 resistance, while its lowest is 1.1126, a couple of pips away from the 1.1108 support. Just looking at those values, it’s hard to tell if it’s going to go over the resistance or below the support, but when analyzed by its moving average, the trend seemed to be obvious.
On the daily chart, current 50-day SMA is around 1.1130 while 100-day SMA is around 1.1214, indicating a bearish trend, which is obvious in the parabolic SAR. Also seen in the chart is the 200-day SMA at around 1.1120, dangerously close to the 50-day SMA. Once the two lines intersected, it means a death cross for the Euro, and its further decline would be inevitable. Investors should watch out for this.
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