EUR/USD gears up to close the week with a mild gain following two consecutive losses, as the dollar failed to capitalize hawkish comments from the Federal Reserve.
On Wednesday, the Fed concluded its 2-day policy meeting and announced it was maintaining rates at record lows although it signaled December lift-off was still on the table.
The change in Fed wording was understood as a signal the central bank remains on track to hike rates before the year-end. The Fed said it will determine if it is appropriate to raise rates “at its next meeting” after assessing progress toward its objectives of maximum employment and 2 percent inflation. The Fed also removed from the statement comments regarding global developments potentially restraining economic activity and inflation.
The dollar strengthened as the knee-jerk reaction and dragged EUR/USD to a 2 ½-month low of 1.0896. However, a series of disappointing economic indicators released during the second half of the week cushioned dollar’s rally.
According to recent data, US economic growth cooled in the third quarter, with the GDP rising 1.5% versus 1.6% expected. On Friday, US consumer income and spending came in below expectations, while PCE price index, the Fed's prefered inflation measure, posted the largest drop since January (0.1%).
Still, the shared currency faces its own issues which prevent it from staging a steeper recovery. The European Central Bank Council members confirmed that they will discuss further measures at the next meeting in December, which raised speculations the ECB could extend the QE program.
Amid divergent policy outlooks, the downside remains favored for EUR/USD. Next week’s nonfarm payrolls report takes significant relevance in the light of Fed’s comments. Median forecast points to a 180,000 job gain in October, following September’s 142,000 increase.
If employment figures improve, this should provide additional tailwinds to the USD. However, a weak reading could discourage dollar bulls as it will lower expectations of a rate hike at next FOMC meeting.
EUR/USD technical view
From a technical perspective, EUR/USD retains a bearish tone in daily and weekly charts despite recent bounce. However, the pair has a strong support area just above 1.0800, which has contained every decline over the last 6 months.
A decisive break below 1.0800 could pave the way towards next target at the 1.0660 en route to the 1.0500 area.
On the other hand, should expectations of a December rate hike be hurt by jobs data, EUR/USD could attempt to extend its recovery, with 1.1160 as immediate resistance (20-week SMA) followed by 1.1500 (October highs) as next aim. However, despite short-term bounces the overall picture continues to favor the downside.
On Wednesday, the Fed concluded its 2-day policy meeting and announced it was maintaining rates at record lows although it signaled December lift-off was still on the table.
The change in Fed wording was understood as a signal the central bank remains on track to hike rates before the year-end. The Fed said it will determine if it is appropriate to raise rates “at its next meeting” after assessing progress toward its objectives of maximum employment and 2 percent inflation. The Fed also removed from the statement comments regarding global developments potentially restraining economic activity and inflation.
The dollar strengthened as the knee-jerk reaction and dragged EUR/USD to a 2 ½-month low of 1.0896. However, a series of disappointing economic indicators released during the second half of the week cushioned dollar’s rally.
According to recent data, US economic growth cooled in the third quarter, with the GDP rising 1.5% versus 1.6% expected. On Friday, US consumer income and spending came in below expectations, while PCE price index, the Fed's prefered inflation measure, posted the largest drop since January (0.1%).
Still, the shared currency faces its own issues which prevent it from staging a steeper recovery. The European Central Bank Council members confirmed that they will discuss further measures at the next meeting in December, which raised speculations the ECB could extend the QE program.
Amid divergent policy outlooks, the downside remains favored for EUR/USD. Next week’s nonfarm payrolls report takes significant relevance in the light of Fed’s comments. Median forecast points to a 180,000 job gain in October, following September’s 142,000 increase.
If employment figures improve, this should provide additional tailwinds to the USD. However, a weak reading could discourage dollar bulls as it will lower expectations of a rate hike at next FOMC meeting.
EUR/USD technical view
From a technical perspective, EUR/USD retains a bearish tone in daily and weekly charts despite recent bounce. However, the pair has a strong support area just above 1.0800, which has contained every decline over the last 6 months.
A decisive break below 1.0800 could pave the way towards next target at the 1.0660 en route to the 1.0500 area.
On the other hand, should expectations of a December rate hike be hurt by jobs data, EUR/USD could attempt to extend its recovery, with 1.1160 as immediate resistance (20-week SMA) followed by 1.1500 (October highs) as next aim. However, despite short-term bounces the overall picture continues to favor the downside.
View the Live chart of the EUR/USD
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