Fed and ECB Rate Decisions Poised to Fuel Market Volatility
EUR/USD Breaks Key Resistance Levels, Eyeing a Move Toward 1.0600
The dollar just ended a rough week, during which the US. Dollar Index (DXY) dropped from 109.40 to a low of 107.20 and the EUR/USD rose from 1.0265 to 1.0520. The most volatile days were Monday, fuelled by President Trump’s inauguration festivities, and Friday when the U.S. PMIs came out lower than anticipated.
The week ahead will probably be another barn-burner because both the Fed and the European Central Bank (ECB) will announce their interest rates. The Fed is expected to pause the rate cut, while the ECB is set to cut the rate; usually, volatility increases when the monetary policies of the central banks of the two currencies in a pair start to diverge.
According to the CME FedWatch tool, there is just a 2.1% probability that the rate will be cut by 25 bps, so Wednesday’s rate announcement is mostly priced in.
Economic Calendar Highlights
The first notable event of the week is scheduled for Tuesday at 3:00 pm GMT: the U.S. Consumer Confidence survey. The importance of the survey comes from the fact that consumer spending is a major part of the economy and when consumers are confident in the economic conditions, they tend to spend more.
The U.S. Federal Funds Rate will be announced Wednesday at 7:00 pm GMT and half an hour later, Fed Chair Powell will hold the usual press conference. Usually, this is the time when the market is the most volatile, especially if the Fed Chair provides hints about future rate movements.
The ECB will announce the rate on Thursday at 1:15 pm GMT and ECB President Lagarde will hold a press conference at 1:45 pm GMT. The audience will ask questions and volatility usually increases during this portion of the press conference.
The week will end with another very important indicator: the U.S. Core PCE Price Index. This is the Fed’s preferred inflation gauge and usually has a strong impact on the US Dollar. The release is scheduled for Friday at 1:30 pm GMT.
Technical Outlook – EUR/USD
Last week’s price action broke through several important barriers, which shows that the move is not just a simple retracement in a downtrend. The euro bulls managed to smash the resistance at 1.0350, the 50-day Moving Average, and the long-term bearish trend line.
The break of this confluence zone (a zone where two or more technical indicators converge) indicates that we may see higher prices and a possible move into 1.0600. Of course, the pair is now facing a major hurdle at 1.0500 and we cannot rule out a bounce that will take the price lower (possibly into the 50-day MA) before an attempt to break 1.0500 is made.
