August empty remains on radar after Fed Symposium

EUR / USD Rate Talking Points

EUR / USD follows the monthly range following the knee reaction at the Federal Reserve Economic Symposium, but the low of August (1.1696) remains on the radar ahead of September as the Relative Strength Index (RSI) maintains the downward trend set earlier this month.

EUR / USD Outlook: August low residue on radar after Fed Symposium

The peak in EUR / USD volatility was short lived as the update for the Statement on longer-term goals and strategy for monetary policy showed slight changes in wording to the Fed’s mandate, with chairman Jerome Powell maintain that “a longer-term inflation rate of 2 per cent is most consistent with our mandate to promote both maximum employment and price stability.”

President Powell’s prepared remarks state that the adjustments to the framework “reflects our view that a robust labor market can be maintained without causing an outbreak of inflation, “With the head of the central bank saying that the Federal Open Market Committee (FOMC) will”try to reach inflation which averages 2 percent over time.”

In turn, President Powell argues that “if inflation falls below 2 per cent, appropriate monetary policy is likely to aim to reach inflation above 2 per cent for a while, ”And it seems that the FOMC is in no hurry to scale back its emergency measures, although the Commission outcomes-based approach versus a progressive guidance on calendar based on monetary policy.

Developments coming from the Fed symposium suggest that the FOMC will maintain its current policy with the next interest rate decision on September 16, and current market issues may keep EUR / USD floating as Chairman Powell and Co.increase their holdings of Treasury securities and bureaus secured and commercial mortgage-backed securities at least at the current rate.

However, the buzz in the US dollar seems to be ready in September, as retailers have been shorting EUR / USD since mid-May, with the IG Client Sentiment report show only 37.23% of traders not long the few as the ratio of traders short to long stands at 1.69 to 1.

The latest update shows the number of traders not long EUR / USD is 13.37% lower than yesterday and 4.75% lower than last week, while the number of traders is not short 12.33% lower than yesterday and 18.35% lower than last week.

As a result, EUR / USD open interest rate is 13.76% lower than last week, but the tilt in retail sales may lag in the month ahead as the Federal Reserve shows some intentions to change the path for monetary policy ahead to the US election in November,

With that said, current market conditions could keep EUR / USD above water, especially if the account of the meeting of the European Central Bank (ECB) illuminates that the EUR 1.350 trillion envelope for the Emergency Pandemic Program (PEPP) “should be considered as a ceiling instead of a target,” bFrom the retreat of the annual high (1.1966) can be a more pronounced correction, as the Relative Strength Index (RSI) maintains the downward trend set earlier this month.

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EUR / USD Rate Daily Chart

Source: Trading View

• Note, a ‘golden cross’ materialized in EUR / USD towards the end of June as the 50-day SMA (1.1579) crossed above the 200-day SMA (1.1161), with the moving averages extending the positive slopes to the second half of the year.
• At the same time, a formation of bull flags panned out after the failed attempt to close below the 1.1190 (38.2% retracement) to 1.1220 (78.6% expansion) region in July, with the Relative Strength Index (RSI) help validate the continuation pattern as the oscillator bounces along trendline support to maintain the emerging trend of March.
• However, the EUR / USD rally seems to stop after the failed attempt to break / close above 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region, with the RSI marking a similar dynamic as it slipped below 70 to sell a signal for textbooks.
• Recent developments in the RSI warn of a possible shift in EUR / USD behavior as the indicator snaps the bullish formation of earlier, wrestling with the exchange rate to push above the Fibonacci overlap 1.1810 (61.8% retracement) to 1.1850 (100% expansion) as the oscillator sets a downward trend in August,
• In turn, the 1.1670 (50% retracement) to 1.1710 (61.8% retracement) region remains on the radar as it rises with the lowest August (1.1696), but a while of the monthly magazine opens the 1.1600 (61.8% expansion) to 1.1640 (23.6% expansion) area, with the next region of interest coming around 1.1510 (38.2% expansion) to 1.1520 (23.6% expansion).
• Looking ahead, the RSI will have to break out of the newly created downward trend to bring the top targets back on the radar for EUR / USD.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong