EUR/USD: EUR Rally Was Crazy But Short-Lived, As We Expected

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• New York Federal Reserve President William Dudleysaid recent turmoil in global financial markets made it seem less appropriate to hike interest rates in September. He said: “At this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago, but normalization could become more compelling by the time of the meeting as we get additional information on how the US economy is performing and more information on international and financial market developments.” He added the US central bank is “a long way from” engaging in additional quantitative easing to prop up the economy. Dudley cautioned against over-reacting to the sharp stock price declines until it becomes clear whether they represented a temporary adjustment or a longer-term trend with more serious economic implications. Only a “large and prolonged” stock market drop could potentially weigh on Americans’ willingness to spend, he added.
• Dudley’s comments are often viewed as a guide to the thinking of Fed Chair Janet Yellen. Dudley, who is rather a dovish policymaker, was more direct in his warning than was Atlanta Fed President Dennis Lockhart, who on Monday said only that the rate hike was likely to come “sometime this year.”
• Dudley’s comments, which briefly clipped the USD and helped lift bonds and stocks, come a day before many of the world’s top central bankers gather at an annual conference in Jackson Hole, to which investors will look for clues on how the turmoil may be rattling policy plans.
• US second-quarter GDP growth revision will be released today. We have raised our forecast to 3.4% annualized pace vs. 2.3% reported last month after yesterday’s positive revisions in capital goods orders data.
• The Commerce Department said non-defense capital goods orders excluding aircraft increased 2.2% last month. The market had forecast only a 0.4% rise in July after a previously reported 0.9% increase in June. Shipments of core capital goods rose 0.6% last month after an upwardly revised 0.9% increase in June. Core capital goods shipments were previously reported to have risen 0.3% in June, which suggests higher GDP reading today.
• As we supposed the EUR/USD rise was short-lived and now we see the USD recovery. We took profit on our short EUR/USD position taken at 1.1600. We still see potential for further fall of the EUR/USD and today’s US GDP data (12:30 GMT) may support the USD bulls.
• The EUR was also weighed down by comments from a senior European Central Bank official. Peter Praet said the risk of the ECB missing its inflation target has increased due to commodity price falls and weakness in some overseas economies.

Significant technical analysis’ levels:

Resistance: 1.1561 (high Aug 26), 1.1623 (high Aug 25), 1.1715 (high Aug 24)

Support: 1.1262 (50% of 1.0808-1.1715), 1.1230 (low Aug 21), 1.1215 (high Aug 12)

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