EUR/USD Daily Price Forecast – EURO Bulls Face Pressure from Firm T-Yields as Focus Shifts to US FOMC Meeting

Global markets saw a mixed dollar in North American market hours after ECB President Draghi’s economic update to the EU Parliament sent the euro through 1.18 temporarily on hawkish rhetoric, signaling the ECB’s forward intentions when he explained that “a relatively vigorous pick-up in underlying inflation” was underway, underscoring an improving labor market and signs of shortages, supporting the ECB’s expectations of higher wages. EUR/USD jumped from 1.1750 to 1.1815 – a three-month high – on Draghi’s speech. However completely retraced a few hours later, as ECB chief undercuts his own bullish comments on inflation with warnings over potential effects from protectionism, and also perhaps due to the unease surrounding Italy’s fiscal plans and indeed ahead of the FOMC later this week. The EUR/USD could feel the pull of gravity amid rising treasury yields, having created a big outside-day doji candle yesterday.

Investors Look Forward to Positive Rate Hike Statement in FOMC Update

As of writing this article, the pair was trading at 1.1742 down by 0.06% on the day. The US Dollar selling moderated towards the end of Monday’s trading session and was seen as one of the key factors behind the pair’s intraday retracement slide. As market participants assessed the latest developments in the trade battle between the US and China, the ongoing upsurge in the US Treasury bond yields helped ease an intense bearish pressure surrounding the buck. Investors turn their focus back on this week’s key event risk – the highly anticipated FOMC decision on Wednesday, where the central bank is widely anticipated to raise interest rates by 25bps. The US 10yr treasury yield made a four-month high at 3.09% and the Fed sensitive 2yr yields hit 2.83% to make a fresh high since 2008. The Fed fund futures yields continued to price 100% chance of a hike on Wednesday, while the chance of another hike in Dec is priced at 90%.

Meanwhile Reuters reported that EU’s Trade Commissioner Cecilia Malmstrom commented that “talks between the EU and the US remain in an exploratory stage, and getting down to the hard details of a limited trade agreement between the two are not going to begin until a trade meeting slated for early November ” while at a United Nations General Assembly. From a technical perspective, the pair’s repeated failure to sustain above the 1.1800 handle and the inability to provide a daily close above 38.2% Fibonacci retracement level of the 1.2556-1.1301 downfall now seems to suggest that the near-term bullish momentum might have already run out of steam, A convincing break below the 1.1725 resistance-turned-support, leading to a subsequent fall below the 1.1700 handle will reinforce the expectations. On the flip side, the 1.1780 level now becomes an immediate strong hurdle and is closely followed by the 1.1800 handle. A sustained move beyond the mentioned barrier now seems to pave the way for an extension of the positive momentum towards June monthly high resistance near mid-1.1800’s.