The US dollar is on the rise as the Federal Reserve of the United States decision failed to maintain the strength of the dollar. Despite keeping rates unchanged and having an overall bearish/dovish tone at the press conference that followed, the US currency dropped.
One day after the Fed’s announcement, one of its members, Lockhart, spoke out and basically stated that the Fed is open to the possibility of an interest rate liftoff later this year. This was despite the many occasions that the Fed’s own Chairwoman Janet Yellen, said that a possible rate hike does not mean the beginning of a tightening cycle. The market took Lockhart’s speech as a given and started to push things on the difficult path for US dollar bears.
As a consequence, EURUSD moved lower all the way towards the 1.11 area, (more than three hundred pips when compared with highs after the Fed’s announcement). USDCAD was also trading around 1.33 with another three hundred pip reversal from last Friday.
On the Euro side of things, it should be mentioned that it has been aggressively sold on the back of the Volkswagen emissions scandal. The proof comes from the fact that together with the EURUSD, EURJPY took a hit also, whilst EURGBP traded lower as well.
The rest of the trading week should be interesting as we have two major speeches: one in Europe and the other one in the United States. In Europe, the ECB (European Central Bank) President, Mr. Draghi, is scheduled to testify in front of the European Parliament’s Economic Committee, This event is usually followed by an increase in volatility. Judging by the heavy tone the EURUSD is trading with, I would say it is virtually impossible for the pair not to threaten the 1.10 area as this is the forecasted value for the EURUSD pair given by the ECB staff projections.
The other event comes on Thursday and is from across the Atlantic as Mrs. Yellen is speaking. Markets are not really expecting anything new when compared with what she said at the press conference that followed the Fed’s decision. That being the case, it should be a Euro driven trading week with markets trying to position for the end of month flows that should start pouring in from Friday onwards.
We saw a massive squeeze on the US dollar last Friday. We may just see the same on the Euro pairs if Draghi paints a hawkish picture when he’s testifying. It is pretty difficult to believe he will, however, because if we were to consider the last press conference that Draghi held: the European economy is not looking that good according to the ECB. Not to mention inflation is lacking from the overall picture.
Today’s meeting will reveal more, and we will have our review for currency traders on Monday. Stay tuned and prepare/plan as normal, but stay cautious on your EUR and USD trades.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
