EUR/USD Daily Forecast – Euro Drops to Two-Month Low Ahead of Fed Meeting

EUR/USD continued to edge lower in the first half of the week and briefly pierced through the psychological 1.1000 handle in the early day to trade at a two-month low.

Volatility has been fairly subdued despite heightened activity in other markets and a shift to risk aversion as a result of increasing fears over the Coronavirus. However, this may change later today, as the Federal Reserve holds its monetary policy meeting.

Most analysts are not expecting policymakers to adjust the interest rate after having reduced it three times this year. Recent economic data from the US also suggests that the Fed will remain on hold when it comes to rate adjustments.

There might be an adjustment to asset purchases, or some discussion on how the Fed might look to reduce its balance sheet down the road. This will likely have a larger impact on the equity markets than the dollar.

Positive economic data from Europe failed to lift the EUR/USD exchange rate in early trading today. Consumer sentiment in Germany, reported by the Gfk, rose more than expected as consumers grew more optimistic following the progress in the US-China trade war. As an exporting nation, consumers saw the trade truce as a green light for a turn in the economy.

In a similar fashion, consumer confidence in France rose in December despite several strikes taking place during the fourth quarter. Nevertheless, EUR/USD has been on a fairly steady decline since the Asian open.

Technical Analysis

The psychological 1.1000 area has been tested several times over the past few months, however, the exchange does appear to pause when it nears the level.

So far, a horizontal level at 1.1025 has been capping rally attempts since yesterday and this continues to be a level to keep an eye out on in the session ahead.

Do the downside, further support comes in at 1.0991. This same level served to keep the pair higher on two tests in November.

In the event the pair attempts a recovery, strong resistance is seen at 1.1072.

Bottom Line

• The Fed meets later today and is expected to remain on hold.
• EUR/USD declined to a two-month low although downside momentum has slowed since the start of the week.
• The 1.1025 level is seen as a line in the sand for a directional bias in the session ahead.