USD under pressure after Powell’s Jackson Hole speech – EURUSD on its way to 1.2000?

August 28, 2020 13:00

Source: Economic Events August 28, 2020 - Admiral Markets' Forex Calendar

After the speech from FED chairman Jay Powell in Jackson Hole on Thursday, volatility in EURUSD picked up.

Powell brought up "average inflation targeting", which means that the FED will allow inflation to run above the FED target rate of 2% for a period of time. Despite the fact that he relativized his words by saying that any overshoot of inflation will be moderate and won't last for prolonged periods, it still brought the US-Dollar under pressure,

However, it still seems possible that the currency pair could push to and above 1.2000 into the weekly close and negate the bearish divergence on the daily time frame which has pointed, technically, to exhaustion of recent bullish momentum.

Nevertheless, it needs to be seen how deep beyond 1.2000 EURUSD can run. Some things to take into consideration as we look at what EURUSD's next moves might be:

  • We are taking a deeper look at the current FED policy of the ECB
  • We are also considering yield expectations
  • What's key here, is that the US-Dollar has seen most of its recent weakness due to rising speculation surrounding negative yields
  • this could result in potentially extremely bullish sentiment for the Euro

As such, the chance for a short-term correction remains on the table and is limiting the attractiveness, risk-reward wise, of Long engagements.

Still, we are keeping our bullish EURUSD view. Even a deeper corrective move to as low as 1.1400 seems very attractive from a risk-reward perspective, given our 12-month target of 1.2500, which could likely even turn out to be 1.3000 in EURUSD:

Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between May 20, 2019, to August 27, 2020). Accessed: August 27, 2020, at 10:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the EUR/USD fell by 10.2%. In 2016, it fell by 3.2%. In 2017, it increased by 13.92%. In 2018, it dropped 4.4% and in 2019, it fell by 2.2%, meaning that after five years, it was down by 7.3%.

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