EUR/USD Flat Ahead of ECB and Fed Meetings
Breakout in the Making?
by Bogdan Giulvezan
The Euro-Dollar pair has been trading sideways with low volatility, ahead of a plethora of central bank meetings, including the Fed and European Central Bank. This state of calmness is likely to continue until the Fed meeting scheduled for Wednesday; markets are pricing in a 91% chance of five rate hikes (25-bps each) over the next two-year period, which is approximately the same estimation as the one made before Thanksgiving.
Before the central bank meetings take place, the pair will be affected by a few notable releases but unless major surprises take place, it will be smooth sailing until mid-week at least.
Key Events for the Week Ahead
Tuesday, December 14 at 1:30 pm GMT, the U.S. Producer Price Index will offer another set of inflation data. The index tracks changes in the price charged by producers for their goods and services, and is a leading indicator of consumer inflation because a higher producer cost is usually passed on to the consumer.
The Retail Sales and Core Retail Sales come out Wednesday at 1:30 pm GMT, followed at 7:00 pm GMT by the FOMC Economic Projections, FOMC Statement, and half an hour later by the usual press conference where Fed Chair Powell will read a prepared statement and answer journalists’ questions. The interest rate is not expected to change but any clues about the pace of the asset purchase tapering will increase volatility.
The ECB will convene Thursday at 12:45 pm GMT and will release the Monetary Policy Statement as well as the interest rate. Later, at 1:30 pm GMT, ECB President Lagarde will hold a press conference which is always an incentive for strong movement.
Chart Analysis – EUR/USD
The pair is hugging the 1.1300 handle and is trading very close to the lower border of the diagonal channel. Movement is sluggish and lacks a clear bias but the fact that the price tried several times to push above this diagonal resistance and failed shows that the bulls lack any momentum.
Market participants will be reluctant to commit to either side at least until the Fed meeting concludes, thus the most likely scenario is range-bound trading during the beginning of the week. The main bias is bearish, as we are in a downtrend but this doesn’t totally exclude a possible climb closer to 1.1400. However, the more likely scenario is a move towards the bottom of the range, at 1.1200 – 1.1175.
