EURUSD
The EURUSD exchange rate has rallied from earlier losses in the European session after the release of U.S. GDP and jobless claims data, followed by Jerome Powell’s speech from Jackson Hole. The pair had slipped to a low of 1.1792 in the European session, but moved higher on the data, before trading to a high of 1.1900 following Fed Chair Powell’s speech from the economic event.
Powell’s speech began by re-inforcing the bank’s dual mandate, stating that the Fed, “…will be highly focused on promoting a strong job market.” He then began to outlay the central bank’s strategy for inflation targeting, saying that the bank will, “…steadfastly seek to achieve a 2 percent inflation rate over time.” Powell’s remarks reversed last week’s dovish approach to policy and led to a rally in inflation-linked assets such as gold and bitcoin.
U.S. jobless claims fell again in late August to just above 1 million and resumed a downward trend, which is highlighting a gradual recovery in the U.S. labor market. The jobs number followed a small upward revision in U.S. GDP, which came in at -31.7%, versus an expected -32.5%. Both data releases were close to analyst expectations and the dollar saw little benefit.
Today’s rally is based on Fed Chair Powell’s comments that re-iterated a desire to fight deflation and target the 2% inflation level. This is a signal that the Federal Reserve will continue to embark on monetary policy actions that will be focused on stimulus measures.
EURUSD has been trading in a wedge pattern, where the upper resistance line runs from the pre-virus highs. The pair broke above this level on the 27th July, and has continued to find support there. This was a signal that the pair could move higher and today’s speech gives EURUSD a chance to test the 1.1965 high from 18th August. Losses should be cut at 1.1760 where the wedge support lies. For information on technical patterns like wedges, please sign up for the Investing Cube trading course.
