EUR USD braces for Yellen and Draghi at Jackson Hole

A combination of highly anticipated speeches from Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the Jackson Hole Symposium later this week has the potential to shake EUR/USD out of its recent trading range.

Since hitting a multi-year high just above the 1.1900 level in early August – a high not seen since early 2015 – EUR/USD has pulled back into a trading range bounded roughly between 1.1900 to the upside and 1.1700 to the downside. This trading range has come on the heels of an accelerated uptrend that pushed the currency pair up from its April lows above 1.0500 to the noted early-August high around 1.1900.

The Economic Symposium, hosted by the Kansas City Federal Reserve Bank in Jackson Hole, Wyoming, is scheduled to start on Thursday. The Symposium is a gathering of central bank officials and finance ministers, among others, where the most anticipated events will be speeches by key central bankers. On Friday, both Fed Chair Janet Yellen and ECB President Mario Draghi are slated to speak. The content and tone of their speeches are highly likely to make a significant impact on the US dollar and euro, respectively.

In the run-up to these speeches, the euro has been wavering within its prolonged rally, particularly after last week's release of minutes from July’s ECB meeting, in which concerns were expressed over the possibility of the euro “overshooting.” At that time, EUR/USD dipped below the 1.1700 support level before recovering. Meanwhile, prolonged US dollar weakness has stabilized somewhat recently, even as sustained indecision and dovishness from the Fed have continued to prevent any meaningful dollar rebound.

These conditions could easily be impacted by the Yellen and Draghi speeches on Friday. Some Fed-watchers are expecting hawkish nuances from Yellen's speech, which could provide a much-needed boost and rebound for the battered US dollar. For his part, any further mention by Draghi of euro strength or even non-mention of stimulus tapering could place increased pressure on the shared currency. If these scenarios play out, EUR/USD could potentially see a bearish disruption, or possibly even a reversal, of its bullish trend, which would begin with a breakdown below the 1.1700-area lower support border of this month’s trading range.