Good morning traders.
Last week seemed to be a pivotal week for the eurusd. First we had the speech Draghi gave in Portugal almost echoing his “we will do whatever it takes ” pronouncements of a few years ago. His central point this time is that the EU economy is showing no signs of lifting inflation so it needs extra stimulus from the ECB to help it on its way. In short order (within 24 hours) ECB ´sources´ were out stating that interest rates were to be the weapon of choice.
This initially pushed down the eurusd exchange rate to below the 1.12 level ready for whatever Powell had to say about the Feds plans on Wednesday of last week. As I mentioned, Powell has been under some pretty fierce pressure from Trump to cut rates ostensibly to support the real economy but a cynic may say his position is more focussed on spurring US indices ever higher to provide a re election platform as we start to engage with the next US Presidential race. On the other hand there are others, less politically motivated, also voicing concerns that at least an insurance cut is warranted so Trump is not alone.
In the face of this Powell delivered a balanced view not directly signalling rate cuts but making it clear that if the economy showed any signs of weakness rate cuts and or further stimulus would be enacted quickly. Consequently the USDx dropped in line with what markets took to be a further step towards easing.
So now we have both the ECB and the Fed in dovish mode and it appears the US$ is taking the brunt of the down draft at the moment as it has run the furthest for longer and the Fed has more ´room´ to ease policy than most other G20 CB´s. The eurusd rose above the 1.13 level late Friday to close the week at 1.1365. The next upside targets are 1.14 and thereafter 14.50 / 80 and 1.15.
This week the big event will be the G20 meeting and in particular whether Trump and Xi get it together and take a positive or negative step towards settling the trade dispute.
NB: Heads Up. As we come into the summer months I will be writing fewer morning briefings as I intend to take some time to review how this exercise has gone over the last 9 months or so and to take a look at how I might improve it. I expect to be back in full swing in September or October.
The Daily Chart
Watch for any pullbacks to around the 1.1350/20s for signs of buyers stepping in to support the up move. Similarly watch for sellers reacting at key levels marked to the upside. The Eurusd has spent a long time pushing lower so any trend change will likely be a stepped process but a steep and fast rally cannot be discounted to catch trapped sellers.
Also note that while the ECB has said the exchange rate is not a policy target in reality all central banks have an eye on making sure their currencies do not over step the mark undermining their international trade position. Trump accused the ECB of this last week so its ´in play´- just something to bear in mind !
The Hour Chart
Levels as per.
Have a good one :).