EURUSD – Seeking Confirmation of Monday’s Break

We’re seeing a rebound in the dollar following a strong start to the day following comments from FOMC voting member William Dudley, who claimed that a September rate hike looks less compelling.

While this isn’t necessarily a surprise given the extreme levels of market volatility as of late and growing concern over emerging markets and how that may impact the US, the acknowledgement of it did hit the dollar.

The end of the week will see attention back on the Fed with a number of policy makers due to speak including vice Chair Stanley Fisher at the Jackson Hole Symposium. Similar acknowledgements from other policy makers would make a September rate hike far less likely, bringing December into focus. As Dudley noted, there is a desire to raise rates this year if possible.

The euro had broken back below 1.14 against the dollar prior to Dudley’s comments, wiping out gains made during Monday’s rally which was driven by the unwinding of carry trades. The quick reversal of this rally could suggest that sentiment is not as bullish as Monday’s move would suggest.

That said, the pair is yet to close below 1.14 and a failure to do so would actually act as confirmation of the break, in effect lending credibility to Monday’s move.

On top of that momentum appears to still be firmly to the upside, which would suggest the bulls are not yet done. A break of the trend line on the stochastic may be an early sign that momentum is shifting.

Finally the 4-hour chart also looks quite bullish with the pull back over the last couple of days forming a falling wedge, a bullish formation. A break above this could spark another strong rally higher.

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