Important week ahead of us as two of the most important central banker in the world, Draghi, and Yellen, are testifying in front of the European Parliament, and the US Senate and Economic Commission respectively. This generally triggers a lot of volatility in the forex market and most likely is going to be the case this week as well.
Moreover, this turns out to be the last trading week for the month of September, and therefore look for the end of month flows to influence trading into the second half of the week.
Yellen’s testimony will take place Wednesday and Thursday, and by far Wednesday’s speech is more important. I don’t know what else can she say when compared with the last FOMC press conference from one week ago, but make sure that the market will move. It goes without saying that the November meeting is out of the question for a rate hike to happen, so all focus will be now on a December rate hike.
This week’s focus will be on deciphering the tone Mrs. Yellen will use when testifying and the questions and answers session is always an interesting one.
As for the Euro, Mr. Draghi already testified Monday and he was neutral. This doesn’t mean we should all jump and buy the Euro as, from my point of view, the Euro has a bigger problem right now than monetary policy: Deutsche Bank.
Deutsche Bank is one of Europe’s bigger commercial banks and this week its share price tumbled to 10 Euro/share, down from 100 a few years back. Such a move made many compare the Deutsche’s path to Lehman Brothers at the helm of the 2008 financial crisis and, if the correlations are indeed true, Deutsche may have the same faith.
This would trigger a systemic risk throughout Europe as other banks in the region will suffer from contagion and Euro will be put into question yet again.
Leaving fundamental analysis behind us, the technical picture is not looking brighter for Euro as well. EURUSD is consolidating in a pattern that is about to break lower on the bigger time frames, while EURJPY is driving lower based on the JPY strength given by risk-off uncertainties.
Such an uncertainty seems to be the US election later in the Fall as the market will focus on the US dollar the more we get closer to the event. If the US dollar catches a bid, expect the most affected currency pairs to be the EURUSD and AUDUSD ones.