Euro explodes to the upside after dovish comments from Fed

Anthony Gallagher Anthony Gallagher

16 July 2019

Federal funds rate

The Euro exploded to the upside at roughly 8:30 AM New York time during the trading session after the statement from Jerome Powell was released. Remember, during the day he is speaking in front of the U.S. Congress, giving the biannual Humphrey Hawkins testimony. The statement reiterated the need for accommodative policy, so at this point all signs point to an interest rate cut. At this point, it makes sense that the US dollar would get hammered as we are seeing not only against the Euro, but many other markets around the world.

Major shift in sentiment

While the European Union obviously has its own problems, this is a major shift in sentiment. We are seeing an obvious shift to the dovish side when it comes to the US dollar, and the bullish side when it comes to risk assets. This will generally favor the Euro, as it is essentially the “anti-dollar.” We have still not heard the statement coming out of the Chairman yet, but it was a pre-release of his opening statement. There are of course is the question and answer portion that will greatly influence where we go next but it does seem as if the dollar will be on its back foot.

Technically important level holds

The technically important 1.12 level, of course, has held, as noted on the chart. We had formed a hammer from the previous session, which is obviously a bullish sign, but we also have the 61.8% Fibonacci retracement level from the longer-term trade holding there as well. That being said, the candlestick went immediately to the 50 day EMA where it froze. However, we are still waiting on the question and answer part of the day, and that should only continue to put bullish momentum into this market.

Beyond that, we did break above the top of the shooting star from the Monday session, so this is a very bullish turn of events for the Euro. I don’t think that the Euro is a market that is focusing on anything other than the Federal Reserve, because quite frankly the European Union has plenty of its own issues. That being said, it looks as if we are trying to form some type of “rounded bottom”, for a longer-term move to the upside. As long as we can stay above the 1.12 level, I think it’s very likely that this market will do quite well.

How to play this market

At this point, I like buying short-term pullbacks and building a larger position. I recognize that the 1.13 level will be resistance but at this point in time, it isn’t crucial. The 1.1350 level is much more likely to hold as we have the 200 day EMA, so at that point, we may run into a little bit of trouble. Overall though, this is a market that looks like it is going to go higher given enough time. If we can finally break above the 1.14 handle, then the market can really start to take off to the upside.


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