EUR/USD eases from four-year highs with the Fed's decision on focus
- The Euro nudged down to the mid-range of the 1.1800s from four-year highs above 1.1875.
- Investors are growing cautious heading into the Federal Reserve's decision.
- The market is bracing for a 25 basis point rate cut and one or two more cuts before the end of the year.
EUR/USD trims gains on a quiet Asian session on Wednesday, but remains trading at 1.1855 at the time of writing, not far from the 1.1879 – a four-year high – reached on Tuesday. The pair has rallied nearly 2% from last Friday's lows, as investors take positions for an expected 25 basis points Federal Reserve (Fed) rate cut and one or two more reductions before the end of the year.
The weak US labour data seen in recent weeks, coupled with moderate inflationary pressures, has boosted monetary easing bets. The ball is now in the Fed's court, and a rate cut is pretty much a done deal, but the dovishness of the bank's forward guidance might be overestimated. Fed Chairman Jerome Powell is likely to refuse to commit to a certain rate path, which might jolt the risk rally. The Fed rate decision will be released at 18:00 GMT, while Powell's press conference will start at 18:30 GMT.
US data released on Tuesday revealed that Retail Sales increased more than expected in August, although the loosening labor market, the deteriorating outlook of the economy, and the increasing prices stemming from higher trade tariffs are weighing on consumer spending.
In Europe, the highlight of the day will be the Harmonized Index of Consumer Prices (HICP) due at 09:00 GMT. The report is expected to confirm that inflation edged up slightly to 0.2% on the month and 2.1% yearly in August. The core inflation is seen growing at a 2.3% yearly rate, unchanged from the previous month. With the Federal Reserve gathering the market's focus, these figures are unlikely to have a significant impact on the Euro.
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | 0.07% | 0.04% | 0.10% | 0.07% | 0.13% | 0.20% | |
| EUR | -0.12% | -0.07% | -0.09% | -0.01% | 0.07% | 0.13% | 0.07% | |
| GBP | -0.07% | 0.07% | 0.00% | 0.06% | -0.02% | 0.06% | 0.06% | |
| JPY | -0.04% | 0.09% | 0.00% | 0.05% | 0.12% | 0.09% | 0.01% | |
| CAD | -0.10% | 0.00% | -0.06% | -0.05% | 0.04% | 0.09% | 0.07% | |
| AUD | -0.07% | -0.07% | 0.02% | -0.12% | -0.04% | 0.08% | 0.00% | |
| NZD | -0.13% | -0.13% | -0.06% | -0.09% | -0.09% | -0.08% | -0.04% | |
| CHF | -0.20% | -0.07% | -0.06% | -0.01% | -0.07% | -0.00% | 0.04% |
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 might bounce up with a data-dependent Fed stance
- The US Dollar has been battered over the last few days as investors ramped up their bets for a dovish turn by the Federal Reserve. At this point, investors might be disappointed if the Fed fails to commit to investors' expectations and maintains that further monetary policy decisions will be data-dependent.
- The Fed Board of Governors will include the former Trump economic advisor, Stephen Miran, who swore in on Tuesday, replacing Adriana Kugler. Governor Lisa Cook will also be on the board as a US court of appeals dismissed US President Donald Trump's bid to oust her.
- On the macroeconomic front, Tuesday's data showed that US Retail Sales grew 0.6% in August and 5% from the same month last year, beating expectations of a 0.2% monthly increase and a 4.1% year-on-year growth. July's data was revised up to a 0.6% increase and a 4.1% yearly increment from previous estimations of 0.5% and 3.9%, respectively.
- In Europe, the German ZEW Economic Sentiment Index improved to 37.3 in September from 34.7 in August, against the market consensus of a decline to 27.3. The Current Situation Index, on the other hand, deteriorated to -76.4 from -68.6 in the previous month, below the -75 reading forecasted by market analysts.
- Likewise, the Eurozone's September ZEW Economic Sentiment Index showed an unexpected improvement to 26.1 from 25.1. The consensus had anticipated a decline to 20.3.
- Eurozone Industrial Production bounced up 0.3% in July following a June's 0.6% drop. Year-on-year, factory activity accelerated 1.8% following an upwardly revised 0.7% growth in June. The market's consensus pointed to 0.4% and 1.7% respective increases.
Technical Analysis: EUR/USD might be ripe for a bearish correction
EUR/USD has rallied continuously for the last four days, breaking through the top of the ascending channel and pushing the Relative Strength Index (RSI) on the 4-hour chart to strongly overbought levels.
The pair is likely to remain little moved ahead of the Fed decision, but the conditions are set for some correction, especially if Fed's Powell dampens investors' hopes of a steep monetary easing cycle.
Downside attempts are likely to find support at 1.1830, where the July 1 high meets the ascending channel's reverse trendline. Further down, the September 9 low at 1.1790 and the intraday support of 1.1755 are likely to be the next targets.
To the upside, Tuesday's high is at 1.1878, and the 161.8% Fibonacci extension of the August 27-September 1 rally is at 1.1885. Above here, the 1.2000 psychological level emerges as a plausible target.
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.
September
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