USD Stabilises Ahead Of Powell’s Speech

Aug 25 20, 10:23 GMT

The USD was able to stabilise yesterday against a number of its counterparts in a rather slow Monday with little volatility in the FX market, despite the rally in US equities. Market attention continues to be on Powell’s speech on Thursday, with analysts tending to expect that a dovish tone could be included in the speech, yet at the same time not excluding any surprises. Analysts also seem to note that the USD has reached very low levels and mention that the market may now be looking for an excuse to buy the greenback. Other than that, financial data may be capturing the attention of traders today, elevating possibly volatility somewhat, especially the US consumer confidence for August, while also Germany’s Ifo Business Climate for August for the EUR could draw attention. It should be noted that EUR traders may be worried for the resurgence of COVID 19 cases in Europe, which could adversely affect its economic rebound and Euro’s direction. With Spain, Germany and France recording the highest number of cases since lockdown measures were lifted, the danger that EU’s economic recovery will be slowed, grows day by day. EUR/USD dropped on slightly yesterday, yet the 1.1790 (S1) support line held its ground, causing the pair’s price action to bounce. We maintain a bias for a range bound movement between the 1.1790 (S1) and the 1.1850 (R1) levels, yet today’s financial releases, for both sides of the pair could alter its direction. Should the USD strengthen and a selling interest be displayed by the market for the pair, we could see EUR/USD breaking the 1.1790 (S1) support line and aim for the 1.1720 (S2) level. Should the pair find buying orders along its path, we could see it breaking the 1.1850 (R1) line and aiming for the 1.1910 (R2) resistance level.

Equities on the rise, fuelled by hopes for medication

US and European stocks may have been the main gainers for the day yesterday as some indexes such as NASDAQ and S&P 500, have characteristically reached new record highs. As mentioned yesterday, the hopes for medication for COVID 19, seemed to fuel the stock market rally, while at the same time gold’s prices remained stable. Also, it should be noted that the US and Chinese trade negotiations took place, and the two sides seem confident about the phase 1 deal. We place additional weight on the news, as the fact that the negotiations are still ongoing, despite the confrontation in other fronts, could imply that the US administration still sees the potential for increased trading between the two economies. We expect that should positive headlines continue to reel in, we could see US equities rally further, albeit a correction lower is possible for US equities. S&P 500 reached new record highs, breaking the 3395 (S1) resistance line, now turned to support and aimed for the 3440 (R1) resistance level. We tend to maintain our bullish outlook for the index, as long as it remains above the upward trendline incepted since the 14th of July. Should the bulls remain in charge as expected, we could see the index breaking the 3440 (R1) resistance line and aim for the 3485 (R2) resistance level. Should the bears take over, we could see S&P 500 breaking the 3395 (S1) support line, the prementioned upward trendline and aim for the 3340 (S2) support level.

Other economic highlights today and early tomorrow

Today during the European session we get Germany’s detailed GDP rate for Q2, as well as Norway’s GDP rate for Q2, while later on Germany’s Ifo indicators for August and UK’s CBI distributive trades indicator for the same month are due out. In the American session, we get from the US the consumer confidence indicator for August, the number of July’s new home sales and just before the Asian session starts the API weekly crude oil inventories figure. As for speakers please note that Richmond Fed President Barkin and San Francisco Fed President Daly (19:25, GMT) are scheduled to speak During the Asian session, we get New Zealand’s trade balance for July.

EUR/USD 4 Hour Chart