The US Dollar strengthened following the Jackson Hole Summit. Market was overestimating the event, for no central bank chief gave hints that deviate from the previous outlook.

The US Dollar strengthened to unparallelled high last week following central bank chiefs meets in Jackson Hole. However, it seems that market were overestimating the event, for no central bank chief gave hints that deviate from the previous outlook.

 

The Stubborn Unemployment

In the annual Jackson Hole summit, The Fed Governor, Janet Yellen, explained why unemployment rate could not adequately valuates job market improvement, while an interest rate hike could hurt the job market significantly, and therefore the need for central bank to look for broader measure before hiking rates. She carefully took balanced approach in explaining her case, that at the end of the day, the only thing anyone could tell is that it was in line with her previous remarks and the last FOMC minutes.

YellenJanet Yellen and Mario Draghi in Jackson Hole


Another long-awaited speech from ECB first Man, Mario Draghi, turned out similarly blah. Draghi was expected to relate the details of ECB future plan in countering economic decline in the Eurozone. The fact that he was just restating ECB commitment to do more in boosting Eurozone inflation was a big diappointment for the market. Again, he did not say what measure is it that the ECB ready to take. Instead, he talked more about the need for cohesive approach between governments to stem unemployment in the area. Consequently, the EURUSD opened far lower today compared to last week closing price, even after dropped to 11 month lows.

Overall, the main topic in Jackson Hole seems to be unemployment, and how the monetary policy maker are trying to regain lost jobs before the 2008/2009 crisis.

 

Declining Economy

Today, we see German IFO business climate index dropped to the lowest in more than a year as geopolitical tensions around Ukraine heavily influences German economy. German IFO index was down from 108 in July to 106.3, fourth consecutive fall this year. Overall indicator within this index has shown significant decline, lower than expected.

German

German IFO Business Climate Index

German IFO business climate index surveys 7000 companies  in manufacture, construction, wholesale and retail industry to measure business sentiment about current condition and expectation for the next 6 months. The index consecutive fall certainly is not a good news for the Eurozone, because German as their number one economy relies heavily on the economy productive side to drive growth.

In the following days, several economic data releases are not likely to drive the EURUSD significantly, either lower or higher with the sentiments they bring. Among them are US New Home Sales, US Durable Goods Orders, German GfK Consumer Climate, German preliminary CPI, US preliminary GDP, US Jobless Claims, US Pending Home Sales, German Retail Sales, and Eurozone flash CPI. US New Home Sales and Durable Goods Orders are expected to have progressed, according to Bloomberg survey. What the market wish now is for the ECB to actually decide on a certain course of action, instead of delivering empty promises.

 

Technically, Oversold

Meanwhile, the EURUSD have been stretched far lower than expected. A reversal have been predicted for last week. However, fundamental circumstances have successfully drive the pair further downward.  The pair in H1, H4, and D1 are showing strong bearish trend, and have fallen below EMA-200 in timeframe W1.

EURUSDEURUSD in timeframe W1 with EMA-20 (red), EMA-60 (blue), EMA-200 (magenta), Fibonacci Retracement, and MACD

From all accounts, it seems that although EURUSD is technically oversold, there are equal opportunity for the pair to move either further downward to Fibonacci 100.0 or bounce upward to Fibonacci 50.0. At this point, the currency has once again in a neutral outlook.