EUR/USD Daily Price Forecast – EUR/USD Moves Range Bound Ahead of FOMC Update

The relentless widening of the US-German (DE) yield spread indicates that markets have priced-in Fed’s gradual path of tightening.
Colin First
EURUSD Wednesday
EURUSD Wednesday

EUR/USD held within a range below the psychological 1.1800 handle in European trading yesterday as investors await guidance from the Federal Reserve, with interest rate decision updates scheduled to release today. With several risk events this week, a breakout appears to be inevitable and technical pattern favors a break to the upside. The US Fed is expected to hike rate by 25 basis points and the move has been priced in, so fluctuations in the greenback will be largely dependent on forward guidance as markets look forward to two more rate hikes this year. Policy makers will be sharing their latest thoughts on the economy and updating the dot plot into 2021. As of writing this article, the EURUSD pair is trading near flat at 1.1764 down by 0.03% on the day.

Investors Look To Forward Guidance Data In FOMC Statement Before Placing New Bets

This is evident from the relentless rise in the US-German yield differential. For instance, the two-year yield spread, which is more sensitive to interest rate expectations, has gone up by 84 points this year. Further, it has increased by 16 basis points in the last four weeks. Clearly, the gradual rate hike path is baked in, hence the rate hike is unlikely to push the EUR/USD lower. The USD may rise across the board only if the Fed signals low tolerance for above-target inflation and willingness to push rates above the neutral level of 2.87 percent.  In addition to the central bank meeting, the markets will also be sensitive to ongoing trade discussions. Market participants have been familiar with the ongoing impacts of headline news related to talks between China and the United States.

Meanwhile NAFTA negotiations have once again come into the spotlight as Trump’s deadline to Canada for closing the deal is less than a week away. When looking from technical perspective, The EUR/USD has charted a big diamond pattern on the hourly chart. A move above 1.1780 (diamond hurdle) would signal a continuation of the rally from the Sept. 10 low of 1.1526 and allow a re-test of the recent high of 1.1815. Further gains are ruled out for now as the Fed is expected to sound hawkish. The downside break of the diamond pattern would signal a bullish-to-bearish trend change. Expected support and resistance for the day are at 1.1720, 1.1700, 1.1660 and 1.1815, 1.1852, 1.1945 respectively.

 

 

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