EUR/USD – Euro in Holding Pattern Ahead of Fed Statement

EUR/USD, is showing marginal movement on Wednesday, as the pair trades at 1.0870 in the European session. In economic news, German Consumer Climate posted a strong reading of 9.4 points, within expectations. In the US, the Federal Reserve will release a policy statement and set the benchmark interest rate for January.

The ECB held its monthly policy meeting last week, and opted to maintain current interest rate and quantitative easing levels. ECB President Mario Draghi noted that he reserved the right to “review and reconsider” the ECB’s monetary policy in March. Draghi reiterated this message at last week’s World Economic Forum in Davos, Switzerland. So what does this mean for the markets? In December, the markets were banking on some strong monetary action from the ECB. When this didn’t materialize, the result was huge volatility from the euro. Draghi doesn’t want a repeat of this fiasco, and is sending out the message that although he’s not prepared to make any moves right now, the ECB could increase monetary easing if inflation and growth numbers in the bloc worsen in the next two months. Draghi is clearly trying to improve communication with the markets, and upcoming Eurozone and German economic indicators will play a key role as to whether the ECB makes any moves in the March statement.

It’s showtime for Janet Yellen and Co., as the Federal Reserve concludes a two-day meeting and issues a policy statement later on Wednesday. The markets are predicting that the Fed will leave interest rates at the current level of 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets down and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed could hold off from further tightening until mid-2016 or even later. The January statement could well be a balancing act, with the Fed acknowledging weaker economic conditions in the US while emphasizing that the economy is still growing and moving in the right direction. The collapse of oil prices has contributed to the weak inflation picture in the US, with current inflation levels well below the Fed target of 2.0%. Low inflation, indicative of slack in the economy, remains a significant concern for Fed policymakers, who are unlikely to approve another rate hike without an upturn in inflation. Traders should be prepared for possible volatility in the currency markets following the Fed policy statement.

Wednesday (Jan. 27)

  • 2:00 German GfK Consumer Climate. Estimate 9.3 points. Actual 9.4 points
  • Tentative – German 30-year Bond Auction
  • 10:00 US New Home Sales. Estimate 501K
  • 10:30 US Crude Oil Inventories. Estimate 3.8M
  • 14:00 FOMC Statement
  • 14:00 Federal Funds Rate. Estimate <0.50%

Upcoming Key Events

Thursday (Jan. 28)

  • 8:30 US Core Durable Goods Orders. Estimate 0.0%
  • 8:30 US Unemployment Claims. Estimate 281K

*Key events are in bold

*All release times are EST

EUR/USD for Wednesday, January 27, 2016

EUR/USD January 27 at 4:45 EST

Open: 1.0862 Low: 1.0850 High: 1.0882 Close: 1.0872

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0659 1.0732 1.0847 1.0941 1.1087 1.1172
  • EUR/USD has been flat in the Asian and European sessions
  • 1.0847 has switched to a support role. It is a weak line and could see further action during the day.
  • There is resistance at 1.0941
  • Current range: 1.0847 to 1.0941

Further levels in both directions:

  • Below: 1.0847, 1.0732, 1.0659 and 1.0537
  • Above: 1.0941, 1.1087 and 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged, reflective of the lack of movement from the pair. Currently, short positions have a majority of positions (58%). This points to trader bias towards the pair moving lower.

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.