In today's article on EUR/USD, we will get acquainted with the main theses of the speech of Fed Chairman Jerome Powell at the economic symposium in Jackson Hole. We will also summarize the results of the week that ended by considering several timeframes and also assess the prospects for the price movement of the main currency pair of the Forex market.
As expected, the chairman of the US Federal Reserve System (FRS), Jerome Powell, focused in his speech at Jackson Hole on such moments as the COVID-19 pandemic and its impact on the economy, maximum employment, and a sharp increase in inflation. Regarding COVID-19, Powell said that the pandemic caused the shortest, but at the same time, the deepest recession in history. For example, the volume of production in the second quarter of 2020 fell twice as much as during the crisis of 2008-2009. However, the pace of recovery significantly exceeded economists' forecasts and amounted to four quarters, which is half as much as during the previous economic crisis of 2008-2009. Powell is pleased with the pace of GDP recovery and consumer spending, but spending on services remains about 7-8% below pre-norm levels. As for the sharp jump in inflation, the head of the Federal Reserve explained this imbalance between supply and demand, and this factor was the impetus for an increase in inflation significantly above the Fed's target level of 2%. Describing the recovery of the labor market and employment, Jerome Powell praised the pace of their recovery and said that these rates significantly exceeded initial expectations.
A typical example of this is the very strong July reports on the US labor market. However, economic recovery is not yet fully completed, so various kinds of surprises are possible, including unpleasant ones. The Fed's task is to protect the national economy from such shocks and promote price stability and achieve full employment.
Now, regarding the Fed's further steps in monetary policy and the expected start of the curtailment of the quantitative easing program. Since the economic recovery is uneven, and the appearance of the COVID-19 delta strain creates increased risks, the US Central Bank will not rush to curtail stimulus measures and switch to a tighter monetary policy. At the same time, Powell said that the fairly rapid and largely encouraging pace of economic recovery makes it possible to gradually reduce the volume of the quantitative easing (QE) program and start this process at the end of this year. The continuation and completion of the curtailment of QE, with all the necessary and favorable "if," can continue and end in 2023. Regarding the timing of interest rate increases, they will directly depend on the timing and pace of curtailing asset purchases. If we sum up the much-anticipated speech of Jerome Powell at the economic symposium in Jackson Hole, the head of the Fed was highly cautious in his statements. He repeated the theses he had previously spoken about and refrained from naming clear and specific dates for curtailing QE, indicating only a possible and rather vague schedule for the upcoming Fed refusal from stimulus measures. Well, if you remember, in Friday's EUR/USD review, this was the main scenario, and these expectations were fully justified. Now let's see what the technical picture for EUR/USD turned out to be, and let's start with the results of the closing of weekly trading.
Weekly
At the auction on August 23-27, the main currency pair showed growth, as a result of which a "Bullish Absorption" candlestick analysis model appeared on the weekly chart. In other words, the body of the last candle turned out to be larger than the body of the previous one. This model can be attributed as a likely signal for the continuation of the rise of the quote. However, "Bullish absorption" is not the strongest reversal model, and for its development, an additional signal is needed in the form of subsequent growth. And it may not be because the red line of the Tenkan Ichimoku indicator has a strong resistance. It is also worth noting that the closing price of the last five-day trading period was 1.1795, which is slightly lower than the significant technical level of 1.1800. But the pair has confidently returned above the black 89 exponential moving average, which is located at the value of 1.1735. In general, with all these nuances, judging by the weekly scale, there are more chances for a subsequent strengthening of the exchange rate. At least, this is the subjective opinion of the author.
Daily
On the daily chart, another characteristic moment that can be entered into the piggy bank of euro bulls is the closing of weekly trading above the blue Kijun line of the Ichimoku indicator. If the rate continues to rise, the next target is the 50 simple moving average, which is located at the level of 1.1814. With stronger growth, the pair will meet with the lower border of the Ichimoku cloud, which passes at 1.1839. A turn in the south direction and a departure under the red Tenkan line, with mandatory consolidation below, can cross out the ascending scenario. If we turn to trade recommendations, I suggest today to observe the behavior of the market. Perhaps Powell's performance in Jackson Hole has not yet been fully played out, and today we will see a continuation of the reaction of market participants to this significant event. Tomorrow, considering the consideration of smaller time intervals, we will look for points to enter the market in the most relevant direction. At the moment, the EUR/USD pair has more prospects for continuing growth.
