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EUR/USD Rate Eyes August-High as Bearish Trends Start to Unravel

EUR/USD Rate Eyes August-High as Bearish Trends Start to Unravel

David Song,
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Euro Talking Points

EUR/USD appears to be on track to test the August-high (1.1700) following the Fed Economic Symposium, and recent price action raises the risk for a more meaningful recovery in the exchange rate as bothprice and Relative Strength Index (RSI) threaten the bearish trends from earlier this year.

Image of daily change for major currenciesImage of daily change for eurusd

Despite the limited reaction to Germany’s IFO Business Climate survey, EUR/USD extends the advance from the 2018-low (1.1301) amid the less-hawkish tone from Chairman Jerome Powell, and the exchange rate may continue to appreciate over the near-term as the recent rhetoric casts doubts for four Fed rate-hikes in 2018.

The Federal Open Market Committee (FOMC) may opt for a dovish rate-hike in September despite the risk for above-target inflation as ‘there does not seem to be an elevated risk of overheating,’ and a growing number of central bank officials may adopt a less-hawkish tone amid the ongoing shift in U.S. trade policy.

Image of Fed Fund Futures

Keep in mind, Fed Fund Futures still show bets for four rate-hikes this year, with market participants gearing up for a move in September and December, but it seems as though the central bank is in no rush to extend the hiking-cycle as ‘members agreed that the timing and size of future adjustments to the target range for the federal funds rate would depend on their assessments of realized and expected economic conditions relative to the Committee's objectives of maximum employment and 2 percent inflation.’

With that said, Chairman Powell & Co. may continue to project a neutral Fed Funds rate of 2.75% to 3.00%, and the central bank may stick to the current script throughout the remainder of the year as ‘most expressed the view that an escalation in international trade disputes was a potentially consequential downside risk for real activity.’ Easing bets for a an extended hiking-cycle may keep the dollar under pressure, with EUR/USD at risk of staging a more meaningful recovery as bothprice and Relative Strength Index (RSI) threaten the bearish trends from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

EUR/USD Daily Chart

Image of eurusd daily chart
  • The rebound from the 2018-low (1.1301) may gather pace is it clears the 1.1640 (23.6% expansion) to 1.1680 (50% retracement) region, with a close above the stated region raising the risk for a run at the August-high (1.1700).
  • Keeping a close eye on the RSI as it appears to be leading price, with the oscillator breaking trendline resistance, with the next region of interest comes in around 1.1810 (61.8% retracement), which largely lines up with the July-high (1.1791).

For more in-depth analysis, check out the Q3 Forecast for the Euro

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.