EUR/USD under pressure ahead of FOMC: European open – Nov 1 2023

Asian Indices:

• Australia's ASX 200 index rose by 57.6 points (0.85%) and currently trades at 6,838.30
• Japan's Nikkei 225 index has risen by 675.69 points (2.19%) and currently trades at 31,534.54
• Hong Kong's Hang Seng index has fallen by -11.48 points (-0.07%) and currently trades at 17,101.00
• China's A50 Index has risen by 114.04 points (0.95%) and currently trades at 12,105.57

UK and Europe:

• UK's FTSE 100 futures are currently up 21 points (0.29%), the cash market is currently estimated to open at 7,342.72
• Euro STOXX 50 futures are currently up 16 points (0.39%), the cash market is currently estimated to open at 4,077.12
• Germany's DAX futures are currently up 57 points (0.38%), the cash market is currently estimated to open at 14,867.34

US Futures:

• DJI futures are currently down -70 points (-0.21%)
• S&P 500 futures are currently down -8.25 points (-0.2%)
• Nasdaq 100 futures are currently down -24 points (-0.17%)

Japan’s top currency diplomat Kanda hot the wires with the usual spiel associated with USD/JPY nearing key levels, such as being ‘concerned with one-sided forex moves’, ‘disorderly currency moves’ while citing speculation as being the biggest factor. Whilst USD/JPY has retraced from yesterday’s high (which was its best day in eight months) markets are taking little notice and USD/JPY trades less than 60 pips from the October 2022 BOJ intervention high.

Gold prices are retracing for a third day heading into today’s FOMC meeting whilst bond yields edge higher, suggesting markets may be expecting a slightly hawkish undertone with today’s FOMC meeting. Whilst gold closed above $2000 last week, it has failed to since hold above it and is now retracing within its prior 1950 – 2000 range. Whilst I see the potential for higher gold prices eventually, the path of least resistance may be lower over the near-term, and that’s not so bad given it produced such a strong rally leading into $2000 with little in the way of a retracement.

Oil prices remain under pressure which has seen WTI crude oil inch closer to my initial $80 target, near a 61.8% Fibonacci projection level.

Events in focus (GMT):

• 07:00 – UK house prices
• 09:00 – UK Manufacturing PMI
• 11:00 – US mortgage data
• 12:15 – ADP nonfarm employment change
• 13:45 – S&P Global US manufacturing PMI (final)
• 14:00 – ISM manufacturing, JOLTS job openings
• 14:30 – Crude oil inventories
• 18:00 – FOMC interest rate decision, statement
• 18:30 – FOMC press conference

Take note that 1-day implied volatility for EUR/USD and USD/JPY have spiked higher ahead of today’s FOMC meeting and host of US data. Traders are also on alert with the potential for BOJ intervention. ISM manufacturing and ADP employment reports also warrant a look ahead of Friday’s nonfarm payroll report.

EUR/USD technical analysis (daily chart):

Yesterday’s bias worked out splendidly with the euro rising from the 1.0590 support area after the European open and coming close to last week’s highs before revering. With momentum having turned swiftly lower and forming a lower high on the daily chart, I’m left wondering if the past of least resistance is now lower over the next couple of days.

EUR/USD technical analysis (1-hour chart):

The hourly chart reveals that EUR/USD has twice tried (and failed) to reach for 1.07 over the past week. And the second failed attempt formed a lower high. With momentum pointing lower and having realigned with the bearish structure on the daily chart, the bias is for a lower EUR/USD over the near-term. I wouldn’t be too surprised to see a false pop higher before prices reverse – and perhaps we’ll see a swing high around the weekly pivot point / 1.06 handle before momentum turns lower once more.

Of course, an obvious upside risk is if the Fed are surprisingly dovish – but that doesn’t seem too likely given the strength of data coming out of the US at present.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge