EUR/USD is virtually unchanged on Thursday, with price action settling into consolidation after the pair climbed to a three-month high of 1.1711 earlier this week.
The near-term fundamental and technical backdrop continues to favour the Euro, although momentum indicators are showing early signs of cooling as the pair attempts to build a base just above the 200-day Simple Moving Average (SMA)
At the time of writing, EUR/USD trades around 1.1651. Federal Reserve (Fed) Chair Kevin Warsh’s speech at the Jackson Hole Symposium on Friday is the key risk event and could determine the US Dollar’s next move and, in turn, the direction of EUR/USD. ECB tightening expectations underpin EUR Strategists at Brown Brothers Harriman note that “EUR/USD is directionless around 1.1650, with the 200-day moving average at 1.1632 offering key support,” highlighting a market that is consolidating rather than trending.
They point out that “the swaps curve has virtually fully priced in a 25bps ECB rate hike to 2.50% at the next September 10 meeting and a total of 60bps of tightening over the next twelve months,” a policy path they describe as “reasonable and supportive of EUR.” In their view, the backdrop of “Eurozone inflation is above target, and leading indicators point to stronger economic activity” reinforces the case for further ECB tightening and underpins the single currency at current levels. Technical analysis From a technical perspective, EUR/USD has maintained a steady uptrend since the start of the month, forming a sequence of higher highs and higher lows while reclaiming the key 50-day, 100-day and 200-day Simple Moving Averages (SMAs), which are clustered between roughly 1.1480 and 1.1630. Momentum indicators remain supportive, although upside strength is showing some signs of cooling.