Top Story

Could EUR/USD finally break 1.05 on this FOMC day?

The market is demanding a rate rise and the Fed better deliver it today, for if it doesn’t the bank’s credibly will be severely damaged. There is really no excuse not to do so. Economic data has been improving, financial markets are calm, and Trump’s planned fiscal spending will likely put upward pressure on inflation – not to mention the impact of rising crude oil prices. The dollar could absolutely tank if the Fed does the unexpected and holds fire. But the dollar may drop anyway if the expected rate rise is accompanied by a more dovish-than-expected policy statement and/or projections. I however think this will not be the case. I think the Fed will deliver an upbeat outlook on the economy and the dollar will surge, especially against weaker currencies like the euro.

For the EUR/USD, a hawkish Fed hike could mean the breakdown of the 1.05 handle at the umpteenth time of asking. The ECB has already decided to extend its QE programme and has therefore turned even more dovish. Thus, the growing divergence of monetary policy stances between the US and Eurozone should keep the pressure on the EUR/USD exchange rate.

Now you have seen this weekly chart of the EUR/USD before. If you haven’t, HERE is the link for our December 2 article in which we pointed out two scenarios. We argued that before the ECB and Fed policy meetings that there was a good possibility the EUR/USD would break above 1.0660 and rally into the 1.0850/80 resistance area, before turning lower. Well it did just that on the ECB day and dropped sharply off of this broken old support area, as one would have expected. The unit then paused again at the top of the key 1.0460/1.0525 support range ahead of the FOMC, and is where it was again at the time of this writing.

So far, the EUR/USD has stuck to the script. But it will need to break this 1.0460/1.0525 support area this week, preferably today, if we are to see a run towards parity soon. If it fails to crack the sturdy support despite the ECB extending QE and Fed potentially hiking rates today, then one would have to conclude that the EUR/USD may have put in a bottom for the time being. But our base case scenario is that we will see a breakdown. If so, the first bearish objective on the weekly time frame will be the Fibonacci convergence area between 1.0175 and 1.0225. Below here, the next objective would be parity. This bearish view will become weak if price holds above 1.0690 on a weekly closing basis and become invalid if 1.0850/80 resistance breaks. 

Source: eSignal and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.