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Aug 24 - 01:55 PM

EUR/USD - COMMENT-EUR/USD Rally Unlikely After Powell Speech At Jackson Hole

By Christopher Romano  —  Aug 24 - 11:45 AM

EUR/USD held firm on Monday as investors shunned safe havens for riskier assets nL1N2FQ0IW, but it faces downside risks after Fed Chair Powell's Jackson Hole speech on Thursday.

The dollar could weaken if Powell were to strongly hint that new policies such as yield curve control or average inflation targeting will be introduced at the September Fed meeting.
However, investors could be disappointed if he defers to September and his hints at changes are too vague.

Meanwhile, several factors should prevent investors from aggressively selling the dollar or buying EUR/USD.

Positioning is one.
The latest CFTC report showed net-long euro positions and net-short dollar positions were only slightly trimmed.
Large positions remain, which suggests profit-taking could limit EUR/USD rallies.

Diverging inflation expectations present bearish EUR/USD risks.
Euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R are falling after breaking trend line support while the bull trend for the U.S. equivalent USIL5YF5y=R is intact.

EUR/USD should trade in the 1.1700-1.1970 range until Thursday.
If dollar bulls take control after Powell 1.1700 could break and 1.1570-1.1630 or 1.1490/1.1510 supports could be tested.

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Source:
Refinitiv IFR Research/Market Commentary

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