EUR/USD – Euro Showing Little Movement, US Consumer Confidence Report Next

EUR/USD, is almost unchanged on Tuesday, as the pair trades at 1.0840 in the European session. In economic news, there are no Eurozone releases on the schedule. In the US, today’s highlight is CB Consumer Confidence, with the estimate standing at 96.6 points. On Wednesday, the Federal Reserve will release its policy statement.

At the ECB policy meeting last week, the ECB did not lower interest rates and held off from additional monetary easing. This time the euro did not react with sharp gains, unlike the December ECB meeting, when the lack of action by the central bank surprised the markets, and EUR/USD racked up huge gains. At last week’s meeting, ECB President Mario Draghi noted that he reserved the right to “review and reconsider” the ECB’s monetary policy in March. Draghi reiterated this message at the World Economic Forum in Davos, Switzerland. So what does this mean for the markets? In December, the markets were banking on some strong monetary action from the ECB. When this didn’t materialize, the result was huge volatility from the euro. Draghi doesn’t want a repeat of this fiasco, and is sending out the message that although he’s not prepared to make any moves right now, the ECB could increase monetary easing if inflation and growth numbers in the bloc worsen in the next two months.

The Federal Reserve will be in the spotlight on Wednesday, as the Fed concludes a two-day meeting and issues a policy statement. It’s unlikely that the Fed will raise interest rates, which currently stand at 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets and oil prices sharply lower in the since the historic rate hike. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed may hold off from further tightening for the near future. We can expect the Fed to perform a balancing act in the upcoming statement, acknowledging weaker economic conditions while emphasizing that the economy continues to grow. The collapse of oil prices has contributed to the weak inflation picture, with current inflation levels well below the Fed target of 2.0%. Traders should be prepared for possible volatility following the upcoming policy statement.

Tuesday (Jan. 26)

• 14:00 US HPI. Estimate 0.4%

• 14:00 S&P/CS Composite-20 HPI. Estimate 5.7%

• 14:45 US Flash Services PMI. Estimate 53.9 points

• 15:00 US CB Consumer Confidence. Estimate 96.6 points

• 15:00 US Richmond Manufacturing Index. Estimate 3 points

Upcoming Key Events

Wednesday (Jan. 27)

• 14:00 FOMC Statement

• 14:00 Federal Funds Rate. Estimate <0.50%

Open: 1.0852 Low: 1.0834 High: 1.0874 Close: 1.0841

• EUR/USD has been flat in the Asian and European sessions

• 1.0732 is providing strong support

• 1.0847 was tested earlier in resistance and could break during the day

• Current range: 1.0732 to 1.0847

Further levels in both directions:

• Below: 1.0732, 1.0659 and 1.0537

• Above: 1.0847, 1.0941, 1.1087 and 1.1172

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