EUR/USD Exchange Rate Shows Increased Volatility

Powell’s speech on Friday had a distinctly dovish tone. Expectations of an interest rate cut strengthened, which led to a sharp weakening of the dollar — on the EUR/USD chart, a bullish impulse A→B was formed.

On Monday, as often happens after an initial emotional reaction to major news, the price corrected as market participants reassessed prospects in light of the Fed Chair’s softened rhetoric.

What is particularly notable is that the correction was most evident on the EUR/USD chart, where the decline B→C almost completely offset Friday’s surge. This could point to underlying weakness in the euro, which seems justified when considering that the euro index EXY (the euro’s performance against a basket of currencies) has risen by roughly 13% since the beginning of the year.

The EUR/USD rate reacted less strongly to the news that President Trump had decided to dismiss Lisa Cook, a member of the Federal Reserve’s Board of Governors. While the media debates whether the President has the authority to remove her, traders may instead assess how EUR/USD could fluctuate following the A→B→C volatility swing.

Technical Analysis of the EUR/USD Chart

Recently, we outlined a descending channel using the sequence of lower highs and lows observed this summer. The upper boundary clearly acted as resistance for EUR/USD’s rise on Friday.

From the bears’ perspective:
→ the price has broken downward through an ascending trajectory (shown in purple), and the lower purple line has already changed its role from support to resistance (as indicated by the arrow);
→ today’s rebound from the 1.1600 support level appears weak, as highlighted by the long upper shadow on the candlestick;
→ if this rebound is merely an interim recovery following the bearish B→C impulse, it fails to reach the 50% Fibonacci retracement level.

In addition, the B peak only slightly exceeded the previous August high (which resembles a bull trap).

Taking all this into account, we could assume that in the near term we may see bears attempt to break the 1.1600 support level and push EUR/USD towards the median line of the primary descending channel.

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