EUR/USD – Little Movement as All Eyes on Fed Rate Decision

EUR/USD is trading quietly on Wednesday, as the pair slightly above the 1.09 line in the European session. In economic news, Eurozone manufacturing PMI met expectations. Over in the US, we’ll get a look at Building Permits. This will be followed by the Federal Reserve policy statement, which is expected to announce a historic rate hike for the first time since June 2006.

There was more good news this week out of the Eurozone on the manufacturing front. German, French and Eurozone Manufacturing PMIs all slightly exceeded their estimates, and all remained above the 50-point level, which indicates expansion in the manufacturing sector. These releases follow positive ZEW economic sentiment reports from Germany and the Eurozone, both of which improved sharply. The German release came in at 16. 1 points, good enough for a 4-month high. This beat the forecast of 15.2 points. The Eurozone event rose to 33.9 points, up from 28.3 points a month earlier. Still, this fell short of the estimate of 34.4 points. The euro has rallied in impressive fashion in December, surging close to 500 points. The currency dropped perilously close to the 1.05 line just two weeks ago, but has since rebounded sharply, as it trades at the 1.10 line. The catalyst in the euro’s surge was the ECB policy meeting on December 3, as Mario Draghi and Co. shocked the markets by not introducing any substantial monetary moves, despite the Eurozone economy languishing with little growth or inflation.

Will she or won’t she? Global markets remain abuzz over a widely anticipated rate hike by Janet Yellen and the Federal Reserve on Wednesday. The Fed will conclude a two-day policy meeting and all indications are that the Fed will raise rates by 0.25%, to be followed by further rate hikes in 2016. The Fed last raised rates back in June 2006, and Fed chief Janet Yellen and other policymakers have sent broad signals to the markets that the US central bank if finally ready to act. The US economy is close to full employment, and Yellen recently stated that she was not concerned about persistently low inflation. How the currency markets will react to a hike is of course, the million dollar question. Given that the markets have had ample time to price in this event, volatility from EUR/USD could be muted. At the same time, even a small rate increase represents a huge shift in the Fed’s monetary policy, one which is positive for the US dollar.

There were no surprises from US consumer inflation numbers on Tuesday. Core CPI, which is carefully monitored by the Federal Reserve, remained at 0.2% for a third straight month. CPI dipped to 0.0%, down from 0.2% in November. Both indicators matched their forecasts, so these readings are unlikely to make any waves in the markets. More importantly, these numbers, although pointing to a weak inflation picture in the US, are unlikely to deter the Fed from a widely expected rate hike later on Wednesday.

Wednesday (Dec. 16)

• 8:00 French Flash Manufacturing PMI. Estimate 50.6 points 
• 8:30 German Flash Manufacturing PMI. Estimate 52.7 points
• 13:30 US Building Permits. Estimate 1.16M
• 19:00 US FOMC Economic Projections
• 19:00 US FOMC Statement
• 19:00 US Federal Funds Rate. Estimate <0.50%
• 19:30 US FOMC Press Conference

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Wednesday, December 16, 2015

EUR/USD December 16 at 11:35 GMT

EUR/USD 1.0928 H: 1.0959 L: 1.0923

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European sessions.
• 1.0941 has switched to a resistance role. It is a weak line.
• 1.0847 is the next support level.
• Current range: 1.0847 to 1.0941

Further levels in both directions:

• Below: 1.0847, 1.0732 and 1.0659
• Above: 1.0941, 1.1087, 1.1172 and 1.1305

OANDA’s Open Positions Ratio

EUR/USD ratio is showing movement towards short positions, which command a strong majority (62%), indicative of trader bias towards the euro losing ground.

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.