- EUR/USD fades recovery from nearly two-decade low, renews daily low of late.
- ECB v/s Fed divergence joined US data to underpin previous recovery moves.
- Geopolitical headlines, anxiety ahead of key data/events weigh on prices.
- Statistics from Germany, US will decorate calendar but Powell’s defense of hawkish moves will be the key.
EUR/USD returns to the bear’s table, after hiding in the last three days, as it drops to 0.9965 during Friday’s Asian session. The major currency pair’s latest weakness could be linked to the headlines surrounding the European Central Bank (ECB) and the cautious mood ahead of Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium, not to forget the key US PCE inflation data.
Reuters quoted anonymous sources late Thursday to signal that the ECB reinvestments could continue with the rate hikes, which in turn challenges the EUR/USD hawks amid fears of more inflation in the bloc. Also exerting downside pressure on the quote could be the headlines surrounding China, Taiwan and Iran.
The US suspends 26 Chinese carrier flights in response to China’s action, per Reuters, which in turn renews the Sino-American tension and underpins the US dollar’s safe-haven demand. On the same line could be Taiwan’s increased military budget and a jump in the number of US diplomats visiting Taipei. Furthermore, a letter got viral quoting US President Joe Biden as saying, “The US struck Iran-backed forces in Syria in order to safeguard American civilians both at home and abroad,” which also challenged the previous risk-on mood.
It should be noted that the mixed prints of Germany’s IFO numbers and an upward revision to the nation’s Gross Domestic Product (GDP) for the second quarter (Q2) joined the hawkish European Central Bank’s (ECB) July policy meeting accounts to favor the bulls previously.
On the other hand, firmer US data and mixed Fedspeak failed to impress US dollar bulls. Additionally, weighing on the greenback could be China’s near one trillion stimulus.
While portraying the mood, Wall Street marked the biggest daily jump in a week while the US 10-year Treasury yields dropped back to 3.03%, after rising to 3.10% the previous day. That said, the S&P 500 Futures drops 0.10% intraday by the press time.
Moving on, EUR/USD moves depend upon how well Fed Chairman Jerome Powell could defend the hawkish moves at the annual Jackson Hole speech.
Also important will be the US Core Personal Consumption Expenditure (PCE) Price Index for July, the Fed’s preferred inflation gauge. Forecasts suggest that the YoY print is to ease to 4.7% from 4.8% while the monthly figures may drop to 0.3% while 0.6% prior. It should be noted that Germany’s GfK Consumer Confidence Survey details for September, expected -31.8 veresus -30.6 prior, could also direct immediate EUR/USD moves.
A two-week-old descending trend line, at the parity level of 1.0000 by the press time, restricts short-term EUR/USD upside. That said, the bears are on the way to 0.9900 threshold, for now, before eyeing the 61.8% Fibonacci Expansion (FE) of the pair’s May-August moves near 0.9855.
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