The Euro to US Dollar exchange rate has been correcting back further after comments from European Central Bank (ECB) officials stated that the strengthening currency might pose a risk to growth.
The Euro - which has rallied from the 1.03s to the 1.1909 highs of only two weeks ago - lost ground after the comments.
The correction since the highs is quite shallow indicating a lack of selling pressure and that the up-trend will probably eventually resume.
The pull-back has arguably formed a completed three wave a-b-c correction signalling a possible resumption of the uptrend.
Another possibility is that it may be the bullish flag pattern, which could go substantially higher, as the usual method for calculating the target is by extrapolating the length of the pole from the point of the breakout.
The weekly chart shows how the pair stalled not long after meeting the 200-day moving average.
Price action then formed a shooting star candlestick three weeks ago before consolidating.
The uptrend is still intact and likely to extend higher in the absence of more bearish price action.
A break above the 1.1909 highs would probably rise to a target at 1.2000 just below where the R1 monthly pivot is situated.
Monthly pivots are levels which often act as obstacles to the trend and sometimes even coincide with reversals.
Traders often use them as points at which to enter orders counter to the prevailing trend, and this will probably lead to selling pressure emerging at 1.2015.
To the downside, there is support at 1.1665.
News and Events for the Euro
The first major release for the Euro in the coming week is the ZEW survey on Tuesday, which asks financial professionals for their views on the economy.
The ZEW index is expected to show a fall from the 35.6 in July to 32.3 according to some analysts in August.
The deputy governor of the European Central Bank (ECB) Vitor Constancio will be making a speech on Tuesday at 13.00, which may yield further insight into the ECB’s thinking around the hot topic of whether the Euro is over-valued, as was suggested by commentary last week.
ECB President Draghi will be making a speech at 8.00 on Wednesday, August 23.
At 9.00 on Wednesday Eurozone PMI’s are released and expected to show a pullback in composite PMI to 55.5 from 55.7.
PMI’s have been strong in the Eurozone so a positive result could push the Euro higher.
Eurozone Consumer Confidence is then to be released at 15.00 on Wednesday.
In the second half of the week, much of the focus will be on what ECB President Draghi says at the central banking symposium in Jackson Hole about monetary policy.
Previously there were expectations that he might use Jackson hole to ‘plant clues’ that the ECB was about to wind down its money-printing stimulus activities, which would be positive for the Euro, however, analysts are less certain now.
“We had thought Kansas City Fed’s Jackson Hole Symposium (Thursday to Saturday) would be a milestone for major monetary policy clues. Mario Draghi was thought to be using the conference as a stage to spell out fresh steps in the outlook for ECB monetary policy.
“But newswire reports suggest that the ECB President prefers instead to entertain a fuller debate on the Governing Council (GC) beforehand. This in itself suggests that the GC remains to be convinced that it should announce its QE tapering plans at the next meeting on 7 September.”
News and Events for the Dollar
The main data release in the coming week fall in the second half of the week.
The US Manufacturing and Services sector Purchasing Manager Indices are out at 14.45 BST on Wednesday, and are both expected to show a rise, with the former from 53.3 to 53.4 and the later 54.7 to 54.9.
New Home Sales in July are forecast to show a 610k rise the same as they did in June, and a 0.8% rise month-on-month.
Existing Home Sales are scheduled for release at 15.00 on Thursday, August 24, and are forecast to show a 0.7% rise compared to the -1.8% previously.
Housing is said to “lead the economy” according to financial lore so these metrics are important for monitoring not just the health of the housing market but also of the economy.
On Friday, August 25 the Federal Reserve Chair Janet Yellen will be giving a speech a Jackson Hole on “Financial Stability”, and according to commentators there is a risk that she could call for a speedier rise in interest rates in order to avoid the risk of overborrowing.
“A risk is that she elevates concern about financial stability as a factor which would warrant a more aggressive path of rate hikes.
This would be hawkish; we expect more neutral remarks. That said, the July minutes point to rising concern on this topic by some of the FOMC,” said Canadian investment bank (IB) TD Securities.
Durable Goods orders are out on Friday at 13.30 and expected to drop dramatically by -5.8% in July as “headline strength” full unwinds, “led by a reversal in nondefense aircraft and another contraction in motor vehicles,” said TD.