FED echoes dovish Powell in Jackson Hole – EURUSD to 1.2000 soon?

September 18, 2020 12:30

Source: Economic Events September 18, 2020 - Admiral Markets' Forex Calendar

Into the weekly close, our focus will be on the most-traded currency pair around the globe: EURUSD.

As expected, the FED didn't deliver anything really new at its rate decision on Wednesday, keeping interest rates untouched. They echoed the speech from FED chairman Powell in Jackson Hole on the 27th of August where he brought up "average inflation targeting" by the FED dot plot. This indicated that no rate hike is expected by the FOMC members until the end of 2023.

Since most market participants have been expecting such a stance from the US central bank, the US-Dollar initially saw some buying pressure, but traders shouldn't be fooled by the initial bullish USD performance.

Here are some key points to consider, regarding the ECB and the FED:

  • The rhetoric from the FED clearly indicates that the only direction for US yields in the mid- to long-term is lower
  • The ECB's rhetoric within the ECB statement last week showed no clear tendency towards more stimulus (= ECB president Lagarde only said that it is very likely that a fully PEPP envelope will be used, but gave no signs if and by how much it will be potentially increased) at the ECB meeting in December
  • The yield differential between Europe and the US should continue to narrow, favouring EURUSD long engagements.

Bringing these two central bank events together and combining it with the recent bullish price action and consolidation along with the still elevated speculative net long exposure among big speculators, we remain bullish for EURUSD and see the currency pair making another successful attempt to capture 1.2000 sooner rather than later. We will maintain our bullish bias as long as we trade above 1.1700:

Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between June 10, 2019, to September 17, 2020). Accessed: September 17, 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 EURUSD fell by 10.2%, in 2016, it fell by 3.2%, in 2017, it increased by 13.92%, in 2018, it fell by 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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