EUR/USD – Steady Ahead of Fed Announcement

EUR/USD is trading quietly in Wednesday trading, as pair continues to trade in the mid-1.37 range. In economic news, German releases continue to look sharp, as German Ifo Business Climate posted another solid reading and matched expectations. In the US, the Federal Reserve concludes a critical two-day policy meeting on Wednesday, and the markets are anxiously waiting to see if the Fed tapers QE. As well, the US will release Building Permits, a key event, later in the day.

German releases continue to look sharp this week. PMI data was solid, as the Service and Manufacturing PMIs pointed to expansion. German ZEW Economic Sentiment, a key indicator which is based on a survey of institutional investors and analysts, jumped to 62.0 points in November, up from 54.6 the previous month. This easily beat the estimate of 55.3. On Wednesday, German Ifo Business Climate posted a second straight reading above the 109.0 line, coming in at 109.5 points. This was the key index’s best showing since March 2012. Germany is the Eurozone’s largest economy, and if the region is to shake off weak economic growth and high unemployment, the German locomotive will have to lead the way.

All eyes are on the Federal Reserve, which wraps up a two-day policy meeting on Wednesday. Speculation is swirling that the Fed could announce a tapering of QE. Currently, the Fed is purchasing $85 billion in assets every month, and a Fed taper will likely boost the US dollar against the major currencies. Even if the Fed doesn’t announce a scale down of its asset-purchase program, it could provide a broad hint that tapering is imminent, or provide a sweetener, such as a reduction of the interest paid on reserves (IOER). Any of these options would likely result in the dollar gaining ground. However, if the Fed decides not to change current policy, the markets will be disappointed and the dollar could fall. Whatever the Fed chooses to do, we can expect some volatility from EUR/USD following the Fed announcement.

Meanwhile, a two-year, bipartisan budget agreement is moving quickly through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate is  expected to follow suit on Wednesday. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes much of the fiscal uncertainty we’ve seen in recent months.

 

EUR/USD for Wednesday, December 18, 2013

Forex Rate Graph 21/1/13

EUR/USD December 18 at 11:00 GMT

EUR/USD 1.3755 H: 1.3778 L: 1.3744

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3500 1.3585 1.3649 1.3786 1.3893 1.4000
  • EUR/USD has edged lower in Wednesday trading, as the proximate support and resistance lines (S1 and R1) remain intact.
  • On the downside, 1.3649 continues to provide support. This line has some breathing room as the pair trades at higher levels. This is followed by support at 1.3585.
  • The pair faces resistance at 1.3786. This is a weak line which could face pressure if the euro resumes its upwards movement. This is followed by a resistance line at 1.3893, which has remained intact since October 2011.
  • Current range: 1.3649 to 1.3786

Further levels in both directions:

  • Below: 1.3649, 1.3585, 1.3500, 1.3410 and 1.3325
  • Above: 1.3786, 1.3893, 1.4000 and 1.4140

 

OANDA’s Open Positions Ratio

EUR/USD ratio remains unchanged in Wednesday trading, continuing the trend we have seen since the start of the week. This is reflected in the pair, which has not shown much activity. A large majority of the open positions are short, indicative of a trader bias towards the dollar posting gains against the euro.

The pair is trading quietly in the European session. With the Federal Reserve set to make an announcement later today regarding its QE program, we can expect some volatility from EUR/USD during the North American session.

 

EUR/USD Fundamentals

  • 10:00 German Ifo Business Climate. Estimate 109.7 points. Actual 109.5 points.
  • All Day – ECOFIN Meetings.
  • 13:30 US Building Permits. Estimate 0.99M.
  • 13:30 US Housing Starts. Estimate 0.95M.
  • 13:30 US Housing Starts (Sep. data).Estimate 0.91M.
  • 13:30 US Housing Starts (Oct. data).Estimate 0.92M.
  • 15:00 US Flash Services PMI. Estimate 56.4 points.
  • 15:30 US Crude Oil Inventories. Estimate -2.4M.
  • 19:00 US FOMC Economic Projections.
  • 19:00 US FOMC Statement.
  • 19:00 US FOMC Federal Funds Rate. Estimate <0.25%.
  • 19:30 US FOMC Press Conference.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.