The US debt-ceiling debate and the upcoming Jackson Hole symposium led to a cautious close of US stock markets last night. 

Traders and investors chose to stay on the sidelines ahead of the central banks’ annual meeting at Jackson Hole this Friday. Federal Reserve Chairwoman Janet Yellen and ECB Governor Mario Draghi will deliver key speeches at 22:00pm tonight and 3:00am tomorrow morning respectively, Singapore time. 

Although market participants don’t expect Draghi to reveal an exit plan to end the ECB’s massive bond-purchasing program during this meeting, any clues as to his view of inflation and economic development will be closely watched to gauge the likelihood of tapering by end of this year. Traders should prepare for rising volatility in the forex markets during Yellen and Draghi’s speeches. 

EUR/USD has risen over 12% this year, mainly due to the market anticipating the ECB starting to plan to end its quantitative easing program, as the eurozone economy shows signs of a strong recovery. Since the QE program was first launched in 2014, the central bank has injected over 2.2 trillion euros into its bond-purchasing program, leading to a boom in the central bank’s balance sheet. 

In the White House, the debt-ceiling issue is back on the agenda as the October deadline is just around the corner. Republican leaders keep promising that the debt ceiling will be raised in time, but there remains a lack of details on how this can be achieved. If the US congress were to fail to increase the debt ceiling in October, the Treasury would not be able to pay nearly a quarter of its bills for that month, resulting in defaults. This could further lead to enormous consequences such as a potential downgrading of the country’s credit rating, which will severely damage investor confidence.

President Trump blamed two top Republicans in Congress for not pushing through the legislation to approve raising the debt ceiling. Meanwhile, US Treasury Secretary Steve Mnuchin tried to reassure the market, claiming “we’re going to get the debt ceiling passed”. 

Technical Analysis:

EUR/USD

  • 10-Day Simple Moving Average is nearly flat, indicating no clear direction in the near term
  • SuperTrend (10,2) is sloped upwards, suggesting that an upward trend is intact
  • Immediate support level at 1.684 
  • Immediate resistance level at 1.186 (100% Fibonacci extension level)
  • Momentum indicator MACD continues to trend down, suggesting consolidation


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