EUR/USD coiling for a potential big move heading into the Fed meeting
Matt Weller, CFA, CMT March 16, 2016 4:10 PM
The world’s most widely-traded currency pair has garnered its fair share of headlines over the last week, but heading into this afternoon’s monetary policy announcement from the Federal Reserve, EUR/USD could be poised for another big move.
As we noted in yesterday’s FOMC preview report, the US central bank will almost certainly leave monetary policy unchanged, but the tone of the accompanying statement, summary of economic projections, and press conference could still influence the market’s expectations for interest rates in June and beyond.
While its always difficult to handicap which direction Fed Chairwoman Janet Yellen and company will lean, the aforementioned EUR/USD is setting up for a potentially sharp move regardless of how traders interpret the Fed festitivities. On a technical basis, the pair has been consolidating in an increasingly tight falling wedge / bullish flag pattern since last week’s ECB meeting reaction. The technical analysis textbooks will tell you that both of these patterns tend to lead to bullish breakouts, but readers should have a healthy appreciation for the massive impact that central banks exert on the market by now.
If the Fed comes off as more dovish than traders were expecting, EUR/USD may see a bullish breakout above trend line resistance at 1.1100. In that case, a quick move up to last week’s resistance around 1.12 seems likely, and if that barrier is conclusively broken, the pair may rally toward 1.1300 or even 1.1400 in the coming days. On the other hand, a hawkish surprise from the world’s most important central bank would likely take out support in the 1.1060 level and unwind all of last week’s post-ECB rally on the way back down toward 1.0900.
Either way, FX traders should be even more keyed in to EUR/USD’s movements than usual this afternoon.
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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.