EUR/USD continues to edge higher, and is testing the 1.34 level in Wednesday’s European session. It’s been a slow week for the pair so far – will that change with the FOMC Statement later today? In the Eurozone, the only release scheduled is a German auction for 10-year bonds. On Tuesday, US Building Permits and Core CPI came in as expected. Housing Starts was a disappointment, missing the estimate.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
- Asian session: Euro/dollar was uneventful, as the pair stayed close to the 1.3390 line. Euro/dollar crossed above 1.34 late in the session and consolidated at 1.3394. The pair is unchanged in the European session.
Current range: 1.3350 – 1.3400.
Further levels in both directions:Â 
- Below: 1.3350, 1.3255, 1.32, 1.3160, 1.31, 1.3050, 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750 and 1.27.
- Above: 1.34, 1.3434, 1.3480, 1.3580 and 1.3710.
- 1.3350 is providing weak support. 1.3255 is stronger.
- On the upside, the pair continues to test 1.34. This is followed by 1.3434.
Euro steady as markets eye FOMC statement – click on the graph to enlarge.
EUR/USD Fundamentals
- 9:33 German 10-year Bond Auction. Actual 1.55%.
- 14:30 US Crude Oil Inventories. Exp. 0.5M.
- 18:00 US FOMC Economic Projections.
- 18:00 US FOMC Statement.
- 18:00 US Federal Funds Rate.
- 18:00 US FOMC Press Conference.
For more events and lines, see the EUR/USD
EUR/USD Sentiment
- All Eyes on Fed: The US Federal Reserve will be in the spotlight on Wednesday, as the FOMC releases an eagerly awaited policy statement. There will also be a press conference and the interest rate release. The markets will be especially interested in what the Fed has to say about QE. Speculation has been growing that the Fed could taper QE in the near future, and this has had a very strong impact on stocks, commodities and the US dollar. The Federal Reserve has repeatedly stated that it will continue the current program until it sees an improvement in the US economy, especially in the labor market. Currently the Fed purchases $85 billion in assets every month. If the Fed does make a move and tighten QE, we can expect the dollar to move higher. So what options does the Fed have? There are four scenarios which traders need to take into account. Whatever decision the Fed does choose could well be a market-mover.
- G8 discusses EU – US Free Trade Agreement: G8 summits often are little more than photo-ops, with smiling leaders reaffirming their commitment to cooperate with each other and improve the global economy. However, this year’s G8 meeting in Northern Ireland was not business as usual, as the leaders used the occasion to announce the start of negotiations on a free trade agreement between the European Union and the United States. The stakes are very high – the EU and US produce half the global output, and a third of world trade. A free trade agreement between the US and the EU would be the largest bilateral agreement ever, and could add up to $100 billion to the economies of each partner. Negotiations will get underway in early July, and the leaders want to have a deal in place by the end of 2014, certainly an ambitious time frame.
- Draghi open to unconventional measures: ECB President Mario Draghi reiterated in a speech in Israel on Tuesday that he is open to “non-standard†monetary tools, and would not hesitate to use such measures if needed. Draghi hinted recently that a negative deposit rate was on the table, and the markets reacted negatively, as the euro took a hit. Other measures include long-term lending operations and modifying collateral requirements. Draghi is widely credited for his role in keeping the struggling Eurozone intact and afloat in difficult times, but still has his work cut out for him, as the Eurozone is now mired in its longest recession since the zone was created in 1999. If the ECB does take steps to introduce negative rates or other non-standard measures, we can expect a sharp reaction from the currency markets.
- High unemployment, low inflation bedevil Europe: The Eurozone economy continues to sputter, and a large part of the problem is low inflation and high unemployment. Last week’s inflation numbers in the Eurozone were up slightly, coming in at 1.4%. However, this remains well below the ECB’s target of 2%. The ECB recently lowered interest rates to 0.50%, hoping to raise inflation and increase economic activity. Unemployment in the Eurozone has risen to 12%, and is much higher among younger Europeans. The persistent unemployment crisis has led policymakers to declare that the Eurozone unity faces more danger from a social breakdown than from any market forces. With a severe recession affecting many members, politicians and policymakers will have to find a way to tackle the severe growth and unemployment problems facing the Eurozone if it is to survive.
