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Aug 19 - 03:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD On Cusp Of Dismantling COVID Rally With Fed's Help

By Randolph Donney  —  Aug 19 - 02:13 PM

EUR/USD hit 9-month lows as expanding coronavirus concerns favored the haven dollar, more so as the Fed is seen likely to announce tapering plans at their September meeting nL1N2PP23D, a conclusion strengthened by a bigger-than-forecast drop in initial jobless claims during the August employment report survey week nL1N2PP25J.

The haven dollar, yen and Swiss franc led gains against risk-sensitive currencies such as sterling, aussie and loonie, in line with large losses in Asian, European and emerging markets equities and commodity prices amid rising coronavirus risks.

EUR/USD's 0.26% drop was attenuated by the oft-supportive 21-day Bolli band by Thursday's 1.16655 low and uncertainty as to whether prices would post a close below the 38.2% Fibo of the 1.0636-1.2349 pandemic rally at 1.16945 that could signal further dismantling of the 2020-21 advance.

EUR/USD started 2020 by 1.1200 and looked headed toward for 2017's post-GFC nadir at 1.0340 before Treasury yields spreads over euro zone government debt collapsed due to the Fed's historic easing efforts to mitigate pandemic lockdown damage.

Now the Fed is planning the removal of emergency accommodation, led by asset purchase tapering and eventual rate hikes.
While the ECB is also seen planning to prune its second layer of asset purchases later this year, it is not expected to hike over the next few years.

EUR/USD's 0.9% drop this week resides almost entirely below a pending head-and-shoulders top formation's neckline.
And a close below the 38.2% Fibo of the 2020-21 uptrend would increase the risk of a 50% retracement to the weekly cloud base by 1.15 next, and perhaps to the 61.8% Fibo at 1.1290, closer to where prices were before the pandemic.

A close above 1.1700 would open up corrective rebound risk to the pack of falling moving averages currently clustered just below 1.1800 nL1N2PQ1N0.

Risk-sensitive sterling fell 0.8% to just under the 38.2% Fibo of the September-June advance at 1.3649, by the weekly cloud top at 1.3646.
If those are broken, July's major trough at 1.35725 would be next nL1N2PQ1BL.

USD/JPY was little changed after a post-Fed minutes rally in Asia hit 110.225, followed by a slide to the 109.49 EBS low ahead of the New York open amid outsized haven yen buying that couldn't break Wednesday's 109.48 low.

The Aussie slumped another 1.1% to 9-month lows, nearing the 30-week moving average and October's swing low at 0.7089/7002 amid an exodus from riskier assets and Australia's New South Wales state reporting record new COVID-19 infections for a second straight day nS9N2OY00W.

USD/CAD gained 1.2% as oil-linked currencies suffered as Brent and WTI slid to their lowest since May on waning demand expectations, particularly from China.

Bitcoin and ether posted modest gains, recovering with stocks from early derisking flows.

The next focus is on Tuesday's global PMIs ahead of the Sept.
26-28 Jackson Hole Symposium, the Sept.
3 U.S. jobs report for August and the Sept.
21-22 Fed meeting seen launching tapering plans.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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