Euro Looks Vulnerable as All Eyes Shift to FOMC

EUR/USD ANALYSIS

• FOMC announcement under the spotlight today.
• EUR/USD rising wedge breakout could see euro collapse further.

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EURO FUNDAMENTAL BACKDROP

The euro faces the Federal Reserve interest rate decision later today (see economic calendar below). Although expectations for a rate pause are almost certain (99.5%) as shown via the implied Fed funds futures table, recent US economic data has been relatively robust. Strong GDP, persistent inflation pressures and a resilient labor market should maintain the ‘higher for longer’ message. That being said, high US Treasury yields could reduce the need for additional hikes. In summary, if we see no change to rates the US dollar could remain relatively stable leaving the EUR depressed.

IMPLIED FED FUNDS FUTURES

Source: Refinitiv

From a euro perspective, recent weak Chinese PMI’s will weigh negatively on the EUR and with bleak growth prospects within the region, the USD is unlikely to lose its attractiveness. In addition, the ongoing geopolitical issues (Israel-Hamas war) will keep the greenback’s safe haven attraction alive.

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Another key data point to look out for today will be the ISM manufacturing report which includes JOLTs data alongside the ADP release. This information will be key moving forward but should not have much bearing on todays rate decision.

ECONOMIC CALENDAR (GMT+02:00)

Source: Refinitiv

TECHNICAL ANALYSIS

EUR/USD DAILY CHART

Chart prepared by Warren Venketas, IG

The daily EUR/USD daily chart above trades within a developing rising wedge/bear flag pattern (black) that may hint at subsequent downside should price breach wedge/flag support. Bulls were unable to push above the 50-day moving average (yellow) and the upcoming Fed catalyst could spark a pattern breakout. The Relative Strength Index (RSI) currently hovers around its midpoint zone thus indicating no preference for bullish nor bearish momentum (hesitancy).

Resistance levels:

Support levels:

IG CLIENT SENTIMENT DATA: BEARISH

IGCS shows retail traders are currently neither NET LONG on EUR/USD, with 68% of traders currently holding long positions (as of this writing).

Download the latest sentiment guide (below) to see how daily and weekly positional changes affect EUR/USD sentiment and outlook.

Contact and followWarrenon Twitter:@WVenketas