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EUR/USD Forecast: Shrugging off Fed fears (for now)

  • EUR/USD is trading in a range as markets fear the Fed.
  • Euro-zone figures have mostly disappointed. 
  • The technical picture is mixed for the pair.

EUR/USD is in the familiar area in the mid-1.1300s, looking for a new direction. The primary reason for the stalemate is the uncertainty ahead of the Fed decision. While stock markets express fear that the Fed remains hawkish, movement in currencies remains quite subdued.

The US central bank is set to increase interest rates on Wednesday, completing four hikes in 2018. US President Donald Trump and his senior advisor Peter Navarro called the central bank to refrain from increasing rates in December, but Chair Jerome Powell and his colleagues are unlikely to heed this advice. 

Speculation surrounds the guidance for the next moves. The last forecast from the Fed, known as the dot-plot, indicated three hikes in 2019. However, things have changed since then and a downgrade is seen this time around. The question is: how far will the Fed go? 

More: Federal Reserve preview: A hike, but what next?

Data published on Monday slightly disappointed, with the Empire State Manufacturing Index dropping to 10.9 points and the NAHB Housing Market Index slipping to 56. However, these are third-tier indicators. The latest top-tier release was retail sales, which smashed expectations. The US economy continues doing well on most fronts. 

The US releases Building Permits and Housing Starts later in the day. No significant changes are due.

Back to the old continent, things are not so rosy, according to the data published on Monday. The trade balance squeezed more than expected in October and headline inflation for November was downgraded to 1.9%. The German IFO Business Climate is unlikely to be cheerful.

The European Commission and Italy continue negotiating the budget after the government of the third-largest economy in the euro-zone approved a new framework. In the UK, the government promised to hold the vote in the third week of January. The impact of Brexit on the Euro is waning.

All in all, tensions towards the Fed are due to dominate trading, but unexpected developments amid nervous markets could cause jitters.

EUR/USD Technical Analysis

EUR USD technical analysis December 18 2018

EUR/USD is "hugging" the 50 Simple Moving Average on the four-hour chart, not going anywhere fast. The Relative Strength Index (RSI) is also flat, around 50, and Momentum is absent. 

The pair is trading just below the 200 SMA which comes out at 1.1360, the high point seen earlier in the day. 1.1380 capped EUR/USD in late November and 1.1395 was a high point last week. 1.1425 and 1.1445 are next up.

1.1330 is the bottom of the recent range. Lower, 1.1305 provided support twice in the past fortnight. Significant support awaits at 1.1270 which is a double bottom, last seen on Friday. The 2018 trough of 1.1215 is the next line to watch.

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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