The EUR/USD produced fast and wicked trading results as whipsaw price action developed before going into the weekend as financial institutions were hit by nervous behavioral sentiment.
- The EUR/USD exchange rate started last week’s trading rather comfortably near the 1.10400 to 1.10500 ratios, but by Tuesday nervous conditions globally certainly started to be seen as financial institutions began to question existing outlooks.
- The EUR/USD hit a low around the 1.10260 level late on Tuesday and then climbed back to its known range previously traded earlier in the week.
- However, jobs numbers from the U.S started to come forth late on Wednesday via JOLTS and volatility started to rip through Forex and the EUR/USD.
A high of 1.10960 was challenged suddenly on Wednesday and then mostly held onto higher ground, but Thursday a high of almost 1.11200 came into sight. Things didn’t get easier from there for day traders trying to bet on the EUR/USD. Financial institutions were clearly bracing for U.S jobs numbers late on Thursday and into Friday. When bad Non-Farm Employment Change numbers were published on Friday from the U.S, this fed into what was already frenzied price action. The EUR/USD went into this weekend near the 1.10835 ratio, this after many testing waves of fast price velocity which produced a high of almost 1.11560 on Friday. Day traders may have been ripped apart from the fast conditions if they were not using risk management.
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Storm Clouds Lurking and EUR/USD to Remain Violent
Financial institutions are nervous about the U.S Federal Reserve remaining too cautious. After the bad jobs numbers were reported in the U.S on Friday, a Federal Reserve member uttered rather cautious sounding rhetoric which threw an additional fireworks into a market that was already lit by dynamic moves. The EUR/USD is likely going to see more violent conditions this coming week.
This Wednesday the U.S will release crucial inflation data via Consumer Price Index reports and then not to be outdone the European Central Bank will announce its Main Refinancing Rate on Thursday. Financial institutions who want the U.S Fed to cut their Federal Funds Rate aggressively, also want the ECB to do the same. Economic conditions in Europe remain recessionary and there are signs inflation is coming under control. However, there are no guarantees regarding what the ECB will do this Thursday.
Sustained Level above 1.10000 is a Solid Sign for the EUR/USD
The ability of the EUR/USD to remain above 1.10000 this past week rather comfortably is a signal financial institutions remain optimistic the Fed and ECB will both cut interest rates. The question is how much exactly both central banks will reduce their borrowing rates by.
- The Federal Reserve will conduct its FOMC Meeting announcement on the 18th of September.
- Traders and large investors will not only position for the ECB this coming Thursday, but also start to consider what the Fed is going to do in the following week.
EUR/USD Weekly Outlook:
Speculative price range for EUR/USD is 1.10050 to 1.12300
The problem many financial institutions face is that they are unclear regarding interest rate cuts. Yes, a 0.25% cut at a minimum is going to happen from the ECB and Fed, but will they consider a 0.50% cut? And would the ECB initiate an aggressive cut if they know the Fed is going to remain cautious? Day traders should expect more nervousness in the EUR/USD early this week and a wide price range. Wednesday’s CPI numbers from the U.S which will give a solid indication regarding inflation, and will be a lynchpin in Forex and the EUR/USD. Choppy dangerous trading is likely to be seen until the U.S inflation numbers in the middle of this week.
The EUR/USD has enjoyed a rather solid move higher since late June, but it has not been accomplished without a fight. Financial institutions have clearly bet on the U.S Fed becoming more dovish. However, nervous trading seen in many assets last week underscores nervousness that the Fed may remain too cautious. Many analysts are worried about a U.S economic downturn. Early trading this week will likely prove dynamic, but if the EUR/USD can sustain its support levels seen last week this may be an indication they believe the currency pair has found solid equilibrium and may be willing to look for slightly higher values if the ECB and Fed accommodate dovish outlooks.
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