EUR/USD – Euro rally continues as investors expect dovish Fed statement

EUR/USD continues to head higher this week. In the Wednesday session, the pair is trading at 1.1410, up 0.40% on the day. On the release front, German PPI dipped to 0.1% in November, its weakest gain since February. In the U.S., there are no major indicators. All eyes will be on the Federal Reserve, which is expected to raise rates to a range between 2.25 and 2.50 percent.

The euro is enjoying a strong week, with gains of close to 1 percent. The markets are expecting the Federal Reserve is expected to raise interest rates on Wednesday, which would mark the fourth rate hike in 2018. The odds of a rate hike have dropped sharply – only last week, the odds of a hike stood at 77%, but are currently at 66%.

A key factor in the drop is the latest equity sell-off. On Monday, the S&P 500 Index sank to its lowest level since October 2017. Rate hikes are unusual when stock markets are in a downward spiral, but the Fed is likely to press the rate trigger. At the same time, the Fed may try to soothe the nervous markets with a cautious message about further tightening next year, which has boosted the euro ahead of the meeting. Just a few months ago, there was heady talk of three or four rates in 2019, but analysts are now predicting just one hike, as the U.S economy is showing signs of slowing down.

After a weak third quarter of growth in the eurozone, there are serious concerns that the slowdown will affect fourth quarter numbers as well. ECB policymakers have plenty of headaches, whether domestically or abroad. The global trade war has taken a bite out of German and eurozone exports, and uncertainty over Brexit and the Italian budget have soured investor confidence, which has put pressure on the euro. EUR/USD has declined 2.7% since July 1, and will likely face more headwinds before the end of the year.

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Wednesday (December 19)

  • 2:00 German PPI. Estimate -0.1%. Actual 0.1%
  • 8:30 US Current Account. Estimate -125B
  • 9:00 Belgian NBB Business Climate. Estimate -0.9
  • 10:00 US Existing Home Sales. Estimate 5.20M
  • 10:30 US Crude Oil Inventories. Actual -2.7M
  • 14:00 US FOMC Economic Projections
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rate. Estimate <2.50%
  • 14:30 US FOMC Press Conference

Thursday (December 20)

  • 4:00 Eurozone Current Account. Estimate 18.4B
  • 8:30 US Philly Fed Manufacturing Index. Estimate 15.6
  • 8:30 US Unemployment Claims. Estimate 219K

*All release times are EST

*Key events are in bold

EUR/USD for Wednesday, December 19, 2018

EUR/USD for December 19 at 6:30 EST

Open: 1.1364 High: 1.1410 Low: 1.1362 Close: 1.1400

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1120 1.1212 1.1300 1.1434 1.1553 1.1685

EUR/USD ticked upwards in the Asian session and has edged higher in European trade

  • 1.1300 is providing support
  • 1.1434 is the next resistance line
  • Current range: 1.1300 to 1.1434

Further levels in both directions:

  • Below: 1.1300, 1.1212, 1.1120 and 1.0992
  • Above: 1.1434, 1.1553 and 1.1685

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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.