Topside Breakout Eyed as USDOLLAR Index Moves Up in Flag
- EURUSD retests triangle support, rejected - not a false breakout.
- See the August forex seasonality report.
In a lighter calendar week, traders may be at the behest of current technical trends in FX markets. Just how light?- there is only one "medium" or "high" ranked out during the rest of Monday's session, and the first "high" rated event risk arrives tomorrow morning at 9:00 GMT in the form of the August German ZEW Survey. In fact, there were nearly as many "medium" and "high" ranked events on the USD calendar on Friday (when the July US NFPs were released) than there will be for the rest of this week combined.(10 on Friday versus 14 for this entire week).
Without specific catalysts like economic data, traders will likely rely more on positioning, sentiment, and technical formations to make decisions in the near-term. Factor in the diminished liquidity environment thanks to the summer vacations (especially in Europe), and all of the sudden the market looks like it may actually go through a bit of a lull in volatility.
That being said, any lull in volatility may not last long with the Federal Reserve's September policy meeting - now the frontrunner for the first rate liftoff, per the Federal Funds futures contracts - just around the corner. Shifting rate expectations have already proven themselves to be an important catalyst underpinning pairs like EURUSD, GBPUSD, or USDCAD in recent days; and the market may become more sensitive to small shifts in rate expectations (and interest rate differentials between the USD and other currencies) as the Fed's September event horizon comes into focus.
--- Written by Christopher Vecchio, Currency Strategist
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