EUR/USD pares gains as US Dollar picks up with Fed's rate decision in focus
- The Euro snapped a five-day recovery against the US Dollar, retreating to 1.1630 from highs at the 1.1670 area.
- Investors are cautious about selling US Dollars ahead of the Fed's interest rate decision.
- Technically, a confirmation below the 1.1615 area might increase bearish momentum in EUR/USD.
EUR/USD retreats on Wednesday to snap a five-day rally, trading at 1.1630 after hitting one-week highs near 1.1670 on Tuesday. A stronger US Dollar, ahead of the Federal Reserve's monetary policy decision due later today, is weighing on the pair. However, the positive risk sentiment policy is keeping Greenback rallies limited within previous ranges.
Investors are trimming US Dollar short positions ahead of the Fed's meeting outcome, due at 18:00 GMT. The central bank is widely expected to cut its Federal Funds rate by 25 basis points, but traders will be attentive to Fed Chair Jerome Powell's press conference, looking for signs that confirm market expectations of further monetary easing in December.
Meanwhile, the US President Donald Trump continues touring Asia on good terms. On Tuesday, he signed a trade deal on rare earths with Japan before arriving in South Korea, where he is expected to meet Chinese President Xi Jinping to define a framework that would allow the extension of the trade truce between the world's two major economies.
In the Eurozone, Spain's Q3 Gross Domestic Product (GDP) has shown an unexpected slowdown to a 0.6% quarterly growth from the previous 0.7%, and against market expectations of a 0.7% reading. Year-on-year, the economy has remained growing steadily at a 2.8% pace.
Furthermore, Spanish retail consumption eased to a 4.2% growth in September, from 4.5% in August. These figures are likely to add some negative pressure on the Euro (EUR).
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.19% | 0.36% | 0.03% | -0.08% | -0.36% | -0.13% | 0.16% | |
| EUR | -0.19% | 0.18% | -0.14% | -0.25% | -0.56% | -0.32% | -0.03% | |
| GBP | -0.36% | -0.18% | -0.32% | -0.44% | -0.73% | -0.50% | -0.20% | |
| JPY | -0.03% | 0.14% | 0.32% | -0.11% | -0.40% | -0.16% | 0.13% | |
| CAD | 0.08% | 0.25% | 0.44% | 0.11% | -0.30% | -0.06% | 0.23% | |
| AUD | 0.36% | 0.56% | 0.73% | 0.40% | 0.30% | 0.23% | 0.52% | |
| NZD | 0.13% | 0.32% | 0.50% | 0.16% | 0.06% | -0.23% | 0.29% | |
| CHF | -0.16% | 0.03% | 0.20% | -0.13% | -0.23% | -0.52% | -0.29% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: The US Dollar appreciates ahead of the Fed
- Investors are wary of betting against the US Dollar ahead of the Federal Reserve's monetary policy decision and are closing US Dollar short positions on Wednesday. The US Dollar Index, which measures the value of the Greenback against the most traded currencies, edges 0.15% up on the day, following a five-day recovery.
- Markets expect the Federal Reserve to lower its benchmark rate by 25 basis points to the 3.75%-4.0% range. Futures markets are pricing a 91% chance that the central bank will cut rates again in December, and therefore, Powell's comments will be analysed with interest to confirm those views.
- Traders are also waiting for the Fed to signal the end of the bank's balance sheet reduction programme, known as Quantitative Tightening, to ease pressure on commercial banks, amid growing signals that credit conditions are deteriorating.
- On Thursday, the European Central Bank (ECB) will, highly likely, keep its monetary policy unchanged, with its Rate on the Deposit Facility steady at 2%. The main interest of the event will be on assessing whether the bank has reached its terminal rate or if there is still room for further monetary easing.
Technical Analysis: EUR/USD rally fails at the 1.1670 resistance area
The frail EUR/USD rally seen over the last five trading days has lost steam on Wednesday, with investors growing cautious ahead of the Fed meeting. The pair is moving in no-man's land after failure at 1.1670. The 4-hour Relative Strength Index (RSI) is returning to the 50.0 level, and the Moving Average Convergence Divergence (MACD) is crossing below the signal line, although the negative momentum remains weak so far.
Bears are likely to test a significant support area near 1.1615, where the October 27 low meets the trendline from mid-October lows. A confirmation below here would give fresh hopes for sellers to retest the October 22 low, at 1.1576, ahead of the October 9 and 14 lows at the 1.1545 area.
To the upside, immediate resistance is at Tuesday's high, in the area of 1.1670, which closes the path towards the October 17 high, near 1.1730. The pair needs to breach this level to confirm the bullish trend and aim for the October 1 high, around 1.1780.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.