EUR/USD Price Forecast – EUR/USD Range Bound Ahead of Key Macro Economic ReleasesFalling Italy-Germany yield differential and dovish Fed expectations could keep the EUR better bid today. However the bullish tone may weaken if the German IFO numbers miss expectations.
The EUR/USD pair on Monday closed well above the lower edge of the contracting triangle, neutralizing the bearish view put forward by Friday’s triangle breakdown. Essentially, the EUR bears have been trapped on the wrong side of the market. Moreover, the dollar was offered across the board yesterday on expectations that the Fed would either remove one hike from next year or by taking out the 2020 hike to reflect that the outlook for growth and inflation is modestly weaker than it was in September. These expectations are likely to keep the EUR/USD better bid ahead of tomorrow’s Fed decision. Further, easing concerns regarding Italy’s budget issue, as represented by the narrowing spread between the 10-year Italian government bond yield and its German counterpart is also expected to provide fundamental support to EURO bulls.
German IFO Update is Deal Breaker for EUR Bulls
As of writing this article, EURUSD pair is trading flat at 1.1344 down by 0.03% on the day. Dollar is facing bearish influence from US President Donald Trump’s tweet in which he suggested that Fed should pause at raising rates and disappointing US macro data which saw Empire State manufacturing index fall to 19 month low while home builder’s index dropped to 3½ year lows. The pair is now trading in range bound fashion as investors await key macro data updates which will decide short to medium term outlook of EURO & USD. On release front today, European market will see the release of German IFO business climate while US market will see release of building permits data ahead of much awaited US Fed rate decision update scheduled to release tomorrow.
A disappointing German IFO business climate data will see the pair break from range bound price action and turn dovish ahead of tomorrow’s Fed rate decision but both upside and downside moves will be considerably limited as investors are exercising cautious tone ahead of US Fed update. When looking from technical perspective, the overnight goodish up-move now seems to have faced rejection near an important confluence resistance – comprising of 200-hour SMA and 50% Fibonacci retracement level of last week’s sharp decline. A follow-through weakness below 1.1335-30 region, will suggest that the near-term bearish trajectory is far from over and accelerate the slide towards the 1.1300 handle. Alternatively, a convincing move beyond the mentioned confluence hurdle has the potential to lift the pair towards resistance near the 1.1375 region en-route to its next major barrier near the 1.1400 round figure mark.