NZD/USD: NZ Government Curbs Growth Outlook, H&S Formation Takes Shape

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.1813

1.1820

1.1740

51

80

EUR/USD clings to the narrow range from earlier this week as European Central Bank (ECB) President Mario Draghi highlights the success of the quantitative easing (QE) program, with the pair at risk of staging a larger advance amid growing concerns surrounding the U.S. fiscal outlook.

The shift in EUR/USD behavior may persist in the second-half of the year as the ECB appears to be on course to taper its asset-purchases ahead of the December deadline, but the appreciation in the single-currency may become a growing concern for the Governing Council as it dampens the outlook for inflation. In turn, the resilience in the Euro may be put to the test with the ECB staff scheduled to release its new updates at the next meeting on September 7.

In contrast, the uncertainty surrounding fiscal policy may undermine the Federal Open Market Committee’s (FOMC) scope to further normalize monetary policy as many officials ‘saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.’ Even though Fitch Ratings noted a government shutdown would not directly affect the AAA-rating, the agency warned it would have to review the U.S. sovereign debt rating if the debt limit is not addressed in a timely manner. As a result, FOMC officials may project a more shallow path for the fed funds rate especially as U.S. President Donald Trump pledges to terminate the North American Free Trade Agreement (NAFTA).

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart – Created Using Trading View

  • Lack of momentum to break the monthly opening range undermines the scope for a bull-flag formation, with EUR/USD at risk of facing range-bound prices as the 1.1670 (50% retracement) region continues to offer support following the failed attempt to fill-in the gap from January-2015 (1.2000 down to 1.1955).
  • Nevertheless, the broader outlook remains constructive as both price and the Relative Strength Index (RSI) preserve the upward trends from late-2016, with the momentum indicator clearing the bearish formation from earlier this month.
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    Author: Travis Esquivel

    Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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