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Euro extends losses as bulls lose grip

Fed chair Janet Yellen’s second testimony didn’t quite have as much of an impact as the first but we still managed to get some interesting moves in the FX space.

ECB
Source: Bloomberg

This time Yellen’s comments focused more on asset valuations and less on the fed funds rate. However the US dollar index managed to hold on to the 80 handle and remains fairly robust in Asia. Perhaps Fed member Fisher’s hawkish comments on inflation suggesting it is approaching 2% faster than thought helped keep the greenback bid.

Fisher went on to say this means the Fed may need to start raising rates early next year or sooner. Meanwhile the Beige Book also showed positive signs with the economy continuing to grow through June and July. The Fed's beige book reported that activity expanded in all 12 districts. With Yellen having already acknowledged that raising rates sooner is a possibility, then the USD has been finding some buying.  

EUR/USD key support at 1.3500

Two currency pairs with interesting price action were EUR/USD and GBP/USD as we finally started to see a bit of volatility. EUR/USD has been sold off after it finally broke the 1.3600 handle. The pair extended these losses and printed a low of 1.352 which was quite near the lows post the big ECB meeting when various stimulus measures were announced.

At the time EUR/USD printed a low of 1.3500 before reversing sharply higher. Structural challenges for the single currency have been threatening the currency for a while and discouraging traders from going long.

The ECB’s Nowotny said the central bank sees dangers of side effects from low rates and this mounted pressure on the currency. The region’s CPI data is due out later today and could give some direction for the pair. Should we get a disappointing figure I wouldn’t be surprised to see the 1.3500 support being tested again in the near term.

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