Over the past week, virtually all currencies logged gains. The biggest increase was seen in the New Zealand dollar (+2.66%). Smaller gains were posted by the Australian dollar (+2.42%), the Canadian dollar (+1.69%), the British pound (+1.01%), the euro (+0.82%) and the Swiss franc (+0.65%). On the other side of the FX spectrum, the Japanese yen edged lower (-0.02%).

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The single currency surged 0.37%, to 1.1796 on Friday, August 27. Ahead of Fed Chair Powell’s speech, EURUSD slipped to 1.1735. A pullback followed the release of US macro data, but it was mainly triggered by remarks from Cleveland Fed President Loretta Mester, who said she sees the likelihood that monthly bond purchases could start to be tapered as early as next month.

The dollar started to weaken across the board during Powell’s speech. Market participants pegged Powell’s narrative as dovish even though he stated that QE could be reduced by year-end. He also cautioned that the Fed’s tapering of its bond purchases does not signal that it plans soon to start raising interest rates. 

The DXY index fell to 92.63 by the close, while the yield on 10-year US Treasury yield widened to 1.30%. The euro rose to an intraday high of 1.1803 against the dollar.

Today’s macro agenda (GMT+3)

12:00 Eurozone: economic sentiment, consumer confidence, industrial and services sentiment (August)

15:00 Germany: harmonised inflation rate (August)

15:30 Canada: current account (Q2)

17:00 US: pending home sales (July)

Current outlook

Major currencies saw patchy performance in Asian trading. Trading opened with the dollar moving higher, but the bulls seized the initiative for a while. The aussie and the kiwi are currently trading in the red on the back of Covid-related negativity.

Australia has reported a record daily number of new Delta Covid cases – 1,375. In addition, the New Zealand Ministry of Health announced the first Pfizer vaccine-linked death.

Overall, sentiment points to further weakening of the dollar, so after a brief correction, we can expect to see renewed upside momentum in the EURUSD pair.

Technical analysis

The key pair topped out at 1.1813 in APAC trading. By the time of writing, the euro was trading at 1.1800. The price is trading near the 112-degree angle, hovering in a band (112-135-degree angles, or 1.1800-1.1826) from which corrective movement often sets in.

The balance line (55-day SMA) crosses through the 1.1773 level. In six days, the euro has climbed 150 pips (1.28%). Therefore, a downward correction looks likely on Monday. To continue the upward movement, the bulls will need to hold the 1.1782 level, otherwise, pressure on the euro will increase through profit-taking on long positions.

The bulls’ target zone is 1.1845 (trendline from the tops of $1.1909-1.1900). The shorter the length of the correction, the higher the odds that the rally will continue.

Bottom line: the euro surged on Friday after Powell's speech. The dollar index breached key levels, so its decline may continue as part of the correction, which would exert a positive impact on the single currency. 

The euro rose to a new high in Monday morning Asian trading. The 1.1845 level appeared on the horizon, which is located on the trendline from the tops of $1.1909-1.1900. Support is at 1.1782.