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Before we start to look at the EUR/USD, we first have to understand that Ben Bernanke's speech tomorrow at Jackson Hole, has colored all market responses. Trading in the EUR/USD has been very light and moves subtle. There is not volatility in the markets. Traders are waiting with baited breathe for tomorrow's speech and giving very little attention to fundamental news or reports.
Yesterday, the battle between EUR/USD bears and bulls continued. There was hardly any news to guide price action. Trading was again order driven and technical in nature. EUR/USD tested a first support in the 1.2535 area early in the session, but the support did its job. EUR/USD changed course and came soon within striking distance of Tuesday’s top, even as equities drifted lower. However, the topside was blocked, too. At that time, there appeared headlines on the screens from an opinion piece of ECB’s Draghi in German magazine ‘Der Spiegel’. The ECB President said that sometimes fulfilling the inflation mandate requires going beyond standard policy tools. The article could be seen as a further confirmation that the ECB is setting up new tools to make its crisis management more adequate. However, Draghi didn’t give any details of the ECB plan and there was hardly any EUR/USD reaction. EUR/USD perfectly held within the 1.2532/77 range.
The US Q2 GDP was revised upward from 1.5% Q/Q to 1.7% Q/Q; perfectly in line with expectations and absolutely no reason to leave the intraday trading band.
A few minutes after the US GDP report, the euro moved again higher in the range on headlines from German Chancellor Merkel that the ESM was of primordial importance for euro area and that she was convinced that Italy was going in the right direction. Once again, the euro move didn’t go far.
Late in Europe, EUR/USD dropped temporary below the 1.2532 range bottom. There were rumors on euro selling linked to Swiss diversification flows and on a US think tank report questioning the chances for QE3 in September. Whatever the reason, even after this mini-break EUR/USD found soon a new equilibrium in the low 1.2520/30 area.
According, to the Fed’s Beige Book the US economy continued to grow gradually in July and early August. Still no reaction at all of EUR/USD. EUR/USD closed the session at 1.2530, compared to 1.2565 on Tuesday evening.
Early this morning in Asian trading, equities were again under pressure as growth concerns continue to weigh. However, as was often the case of late, the risk-off sentiment had again hardly any impact on EUR/USD. The pair is even a few ticks higher compared to yesterday’s close.
Today, the calendar of eco data is better filled compared to the previous session. The question is whether there will be any trigger to unlock the stalemate in EUR/USD trading, just one day before the Jackson Hole symposium. In Europe, traders will keep an eye on the German labor market data and the EU confidence data. For the latter we put the risks slightly to the downside of consensus. If so, it might be a slightly negative for the euro. Italy will sell bonds; auctions in Spain and Italy of late were good enough to have no negative impact on the euro. In the US, the personal income and spending data and the jobless claims are scheduled for release. It is doubtful that they will provide a strong enough signal for markets to draw any firm conclusion on the Fed’s strategy for the September meeting. US data will have to be much better than expected to have a positive impact on the dollar.
After all, it looks that EUR/USD trading is poised for more sideways trading ahead of the start of the Jackson Hole symposium.