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Jignesh Davda

A Week Filled with Risk Events for EUR/USD

After a period of unusually low volatility, EUR/USD is starting to come alive with several risk events to provide the markets a catalyst.

Yesterday, the Federal Reserve monetary policy meeting drove EUR/USD above the 1.1100 handle for the first time since the early month.

Policymakers kept rates unchanged which was largely expected. The main message was that rates, and inflation, are likely to stay at current levels for quite some time.

Powell reiterated that the current dynamics are not what they once were when it comes to upward inflationary pressures. As a result, it doesn’t seem likely that rates will be need to be raised anytime soon. At the same time, he communicated that the economy is on pace for moderate growth and continued record unemployment which removes the need to implement further monetary policy easing.

Despite the message, the markets continue to expect another rate cut in the United States, albeit with much less confidence. The futures markets are now showing a roughly two out of three probability for one more cut by the end of 2020.

Investors will shift their attention to European monetary policy as the ECB will announce their latest rate decision and hold a press conference later today. EUR/USD is showing some upward momentum, but a more dovish than expected ECB is probably needed to continue this momentum.


Technical Analysis

EUR/USD found a base this week after testing a confluence of the 50 and 100-day moving averages. The upward momentum gained yesterday as a result of the Fed meeting, leading to a bullish break of a declining trendline.

EURUSD 4-Hour Chart

The trendline is now seen as support in the session ahead and falls near the 1.1100 price point. The pair is currently hovering near a horizontal level at 1.1129. This is a price point that has been relevant on a daily chart in the second half of the year.

To the upside, a potential target might be the 50-week moving average. This indicator is currently converging towards the November highs around 1.1175.

Bottom Line

  • EUR/USD is showing renewed upward momentum following the Fed meeting.
  • The ECB is up next and the pair stands to be impacted by the UK election which takes place today.
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