EUR/USD analysis: dollar weakness ahead of FOMC's Minutes

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.1349

Dovish comments from Fed's Mester put pressure on the greenback.
EUR gains modest as slowing economic growth dents demand for the common currency.

The dollar started the day with a strong footing but gave up during US trading hours, with no particular catalyst either for its strength or its later weakness. The EUR/USD peaked at 1.1357 after hitting a daily low of 1.1274, holding on to gains by the end of the US session. The American dollar eased alongside Treasury yields as down after a long weekend, as equities lost the momentum triggered by optimism about a US-China trade deal. Concerns hit the common currency as US President Trump intends to put tariffs on cars' imports, which will affect the EU's industry. Comments from Fed's Mester, however, brought back the fact that the Federal Reserve has now adopted a dovish stance. Mester said that the reduction in the balance sheet was likely putting upward pressure on the long-term interest rates, now comfortable with slowing the pace of reducing it. She added that economic growth could slow this year, while she sees inflation near the Fed's target of 2.0%. In the data front, the most relevant release was the February ZEW survey, which showed that business sentiment improved modestly in Germany and the EU, printing -13.4 and -16.6 respectively.

This Wednesday, the EU will release February preliminary Consumer Confidence, foreseen at -7.8 vs. -7.9 previously, while the FOMC will release the Minutes of its latest meeting when the central bank decided to keep rates unchanged and announced a more 'patient' stance. Investors now believe that the Fed could pull the trigger one time this year, and will search for clues in the document of whether there those odds could be changed somehow.

The pair is now trading above the 38.2% retracement of the 1.1513/1.1233 slide at 1.1340, maintaining a positive stance in the short term, given that, in the 4 hours chart, technical indicators bounced from their mid-lines, while a modestly bullish 20 SMA provides support, converging with the 23.6% retracement of the same slide at around 1.1300. The common currency has limited upward potential due to slowing economic growth, while the greenback suffers from a less aggressive Fed. The latest could win the long-term battle, but given the upcoming FOMC's event, the short-term picture favors the EUR.

Support levels: 1.1340 1.1300 1.1265

Resistance levels: 1.1375 1.1425 1.1460

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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