The euro closed slightly in the red on Wednesday, August 26, dropping 0.04%, to 1.1830 against the dollar. After the release of favorable durable goods orders stateside, the EURUSD pair dropped to 1.1772. However, US macro data and rising 10-year US government bond yields failed to lend support to the dollar. Exchange rates reversed sharply higher, paring all earlier losses. The price stabilized at 1.1840.
In addition, the situation was impacted by news that EU negotiators rejected talks next week on post-Brexit relations between the UK and the EU. The Brexit issue was removed from the agenda due to the lack of progress in the negotiations.
Today’s macro agenda (GMT+3)
- 15:30 US: Q2 GDP (-32.5 QoQ forecast) and initial jobless claims (1 mln forecast). Canada: Q2 current account
- 16:10 US: Fed chairman Jeremy Powell speech
- 17:00 US: pending home sales (July)
- 18:15 Canada: BoC governor Macklem speech
Yesterday’s price action was in line with our base case scenario, albeit with minor deviations. At the time of writing, the euro stood at 1.1822. Traders await today’s key speech by Fed Chairman Jerome Powell. Investors will be on the lookout for clues about further stimulus from the Fed.
Also in the spotlight is Hurricane Laura, which recently made landfall on the US Gulf Coast. The hurricane is currently a major Category 4/5 storm. Its speed has dropped from 240 kph to 225 kph. This event is relevant for commodity currencies and oil.
Aside from Jerome Powell's speech and the hurricane, traders are concerned about a possible downward revision of 2Q US GDP. The GDP report will come out during the North American session. The second estimate tends to exert less of an impact on the market, but if the value is revised sharply downward/upward, price fluctuations will be strong.
Bullish momentum appears to be fading. The current market environment situation is somewhat reminiscent of the rebounds and the subsequent moves we saw on August 14 (rebound from 1.1782) and August 20 (rebound from 1.1802).
The size of the current candle is small with a long lower shadow. The candlestick pattern is bullish, but it does not always shape up when needed. We still expect to see the key pair test the 1.1860 level, after which the euro can be expected to weaken.