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EURUSD: central bank heads to determine pair’s movements

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On Wednesday the 13th of December, trading on the euro/dollar pair closed 80 pips up. The single currency initially rose against the dollar from 1.1730 to 1.1771 ( 41) after consumer inflation data in the US was published and then rose from 1.1771 to 1.1826 ( 55) after the FOMC meeting.

The FOMC meeting culminated in the decision to raise interest rates again by 25 base points. The federal funds rate now ranges from 1.25% to 1.50%.

The Fed is planning 3 rate hikes in 2018 and has expressed concerns over slowing inflation in the US. As Janet Yellen said, “our understanding of the forces driving inflation isn’t perfect”.

Since the current rate hike and a further three planned for 2018 are now built into the market price, traders are selling dollars en masse.

Day’s news (GMT 3):

  • 10:45 France: CPI (Nov).
  • 11:00 France: Markit manufacturing PMI (Dec), Markit services PMI (Dec).
  • 11:15 Switzerland: producer and import prices (Nov).
  • 11:30 Switzerland: SNB interest rate decision.
  • 11:30 Germany: Markit manufacturing PMI (Dec), Markit services PMI (Dec).
  • 12:00 Switzerland: SNB press conference.
  • 12:00 Eurozone: Markit manufacturing PMI (Dec), Markit services PMI (Dec).
  • 12:30 UK: retail sales (Nov).
  • 15:00 UK: BoE interest rate decision, BoE asset purchase facility.
  • 15:45 Eurozone: ECB interest rate decision.
  • 16:30 Eurozone: ECB monetary policy statement and press conference.
  • 16:30 Canada: new housing price index (Oct).
  • 16:30 USA: initial jobless claims (8 Dec), retail sales (Nov), import price index (Nov).
  • 17:45 USA: Markit manufacturing PMI (Dec), Markit services PMI (Dec).

Fig 1. EURUSD hourly chart. Source: TradingView

Wednesday turned out to be very volatile for global markets. The dollar retreated on all fronts. By the time the US session opened, the euro had dropped to 1.1730. Market participants were jittery ahead of the FOMC meeting.

After consumer inflation data was published, the first major wave of dollar sales took place. The FOMC meeting and Janet Yellen’s speech led to even more sales. In the US session, the euro recovered to 1.1826. In Asia, the pair has reached the 1.1844 mark.

Three central banks have their meetings today. They are the Bank of England, Bank of Switzerland, and the European Central Bank. Traders will mostly be focused on the ECB and President Mario Draghi’s subsequent press conference. I don’t make forecasts on days when central banks meet and I don’t trade. Because of the press conferences with the heads, these days are unpredictable.

Now let’s see what we can expect from the euro from the technical side. Developments led buyers through the TR line (from 1.1812 high), before breaking the TR1 line (from 1.1961 high) after the FOMC meeting. The breakout of the TR1 intensified the W-model, which started forming after the breakout of the A-A channel. The targets for it are 1.1866 and 1.1881.

The EURUSD pair won’t pay any attention to technical factors during Mario Draghi’s press conference. It could rise above the U3 MA line (1.1889) or just as easily return to 1.1765. No one knows what Draghi will say at the press conference and what journalists will ask him. I think that the most likely outcome is that the pair will move towards the 1.1881 mark.


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