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The Bundesbank suggested the economic outlook for Germany has clouded in response to unfavourable international news, pointing firmly to the geopolitical stage as a big source of concern.
The US dollar is also gaining momentum as we head towards some key releases today, kicking off with building permits, housing starts and CPI data. The US July CPI is expected to show 0.1% month-on-month and 2% year-on-year growth. Some analysts actually feel we’ll continue to see CPI track above the 2% mark, which would be bullish for the USD given that the Fed recently said downside risk to inflation is significantly reduced.
The FOMC meeting minutes and Jackson Hole Symposium will then be taking centre stage from mid-week. Any indications that the Fed is becoming ‘more aligned’ in its views on the economy could benefit the greenback.
Key support likely to be tested
All up, the net effect would be further EUR/USD downside. A key near-term trigger would be a retest of the 1.3334 level, which is where the lows from early August lie. An active downtrend resistance in place since May could continue to cap any recovery, whereas a break above the 1.3334 support could open a trade down to 1.3200. The pair is not in oversold territory, implying room for further near-term selling.