Currency pair of the week: EUR / USD
With the FOMC and ECB meetings, the EUR / USD pair may experience some volatility in forex this week.
The European Central Bank (ECB) is meeting Thursday for its final monetary policy meeting of 2021. Members of the central bank will also release growth and inflation forecasts. Until recently, Christine Lagarde hammered the table telling everyone that current inflation is transitory. Markets were led to believe that although the Pandemic Emergency Purchase Program (PEPP) would end as planned in March 2022, a new bond purchase program or a change in the purchase program asset (APP) could be implemented. However, Christine Lagarde and several other members of the ECB seem to have become a little less conciliatory. In particular, the ECB’s Holzmann, Mullen and De Guindos spoke of higher inflation. So instead of creating a new bond buying program at this meeting, ECB members could stick to it until February.
The United States Federal Open Market Committee (FOMC) is also meeting this week to discuss interest rate policy. Traders may recall that Powell testified a few weeks ago before the Senate and the Banking Committee that he was withdrawing the word “transitional”. The markets immediately called Powell a warmonger! Indeed, he appeared to be one of the few remaining Fed members to publicly acknowledge that inflation is going to stick around for a while! The year-on-year CPI impression for November was 6.8%, the highest since 1982! Expectations for this week’s meeting are that FOMC members will vote to step up the pace of reducing bond purchases from $ 15 billion in bonds per month. The question remains to know by how much they will be increased. If the FOMC does too little, the US dollar could fall. If it’s too much, the US dollar will cry higher. Watch the press conference for Powell’s additional thoughts on Omicron and inflation expectations.
Forecast 2022 Inflation: No more transitory?
Before big events, such as central bank meetings, markets tend to gravitate towards the middle of recent ranges. This is currently happening on the EUR / USD pair. The pair has moved lower in an orderly descending channel since late May. EUR / USD is currently trading forex around the 61.8% Fibonacci retracement level from 2020 lows to January 6, 2021 highs near 1.1290. Recent highs provide the first level of resistance near 1.1387. If the price breaks the upper level, the 50 day moving average breaks through at 1.1460, then a confluence of resistance at the top of the channel’s descending trendline and the previous support / resistance at 1.1490.
Daily EUR / USD Chart
First support for EUR / USD is at the November 24 low at 1.1182, then a confluence of support at the lower trendline of the descending channel and horizontal support near 1.1144. The next level of horizontal support is not until 1.1020!
With the FOMC and ECB meetings this week, the pair EUR/USD may experience some volatility in the forex, particularly later in the week. The pair can move aggressively depending on whether the FOMC is more conciliatory or more hawkish. However, the EUR / USD pair can also move in the opposite direction just as quickly based on what the ECB does and has to say on Thursday!
By Joe Perry, Forex.com » Official site
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may result from the fact that someone relies on such information.