EUR breaks trendline resistance
Markets have still been digesting the speech from Fed Chair Powell at Jackson Hole last week. Stocks markets continue to rise on prolonged largesse from the monetary policy side. Bond yields have moved lower as expectations for interest rate hikes diminish with Powell separating tapering from rate moves.
With real rates sinking, the dollar has struggled even though tapering by year-end remains on the cards. This was already priced in by markets which means much will depend on Friday’s non-farm payrolls report if we are to see a September taper announcement. In the meantime, the greenback is getting sold as position adjustment takes place ahead of this next big risk event.
Eurozone inflation boosted by temporary effects
In Europe, the main data point has been the latest inflation figures, with the headline grabbing the attention with it jumping to a ten-year high. This elevated print was due to a higher core rate and continued year-on-year growth in energy and food prices.
But the surge was widely expected even though the size of the price increases is larger than many expected. Analysts believe that the move in the all-important core figure probably overstates structural inflation due to one-off factors like the German VAT increase and base effects. Next week’s updated ECB forecasts presented at its meeting may not have seen too much upward price pressures just yet.
EUR/USD on the up
With falling Fed rate expectations and positive risk sentiment, the world’s most popular currency pair has now retraced more than half of the distance to the next key upside pivot above 1.19.
Friday’s bullish move took out trendline resistance from the June highs. Recent mid-August highs around 1.18 have been broken this morning and the major has pushed above the 50-day moving average.
The ECB is still expected to remain fairly unreactive especially after its strategy review turned it more dovish. That said, if the positive risk mood endures for a few more days, or the NFP print disappoints, EUR/USD will look to push towards 1.19, thereby breaking the negative broad trend in the euro since early June.
