EUR/USD Remains Above 1.1250 After US Reports
On Wednesday, the EUR/USD currency pair continued to oscillate in a reasonably narrow range below 1.1300, as speculators remained on the sidelines ahead of the Federal Reserve’s important policy announcements in the United States.
According to statistics from the United States, retail sales grew by 0.3% in November, coming short of the market’s anticipation of 0.8%.
Review Of The Technical Details
EUR/USD CHART Source: Tradingview.com
The EUR/USD pair exhibited no response to mixed US economic data, moving in the 1.1260 price range. The short-term risk-weighted towards the negative in the near term.
Using the 4-hour chart, we can see that the pair is resting on the base of a wedge while holding below its 20 and 100 SMAs, both pointing in the same direction. A lack of directional strength is also evident in technical indicators, which remain a negative territory.
A break below the year low of 1.1185 is a significant support level. The pair is likely to break it in the wake of the US Federal Reserve’s statement, which might result in an attempt at the 1.1100 level.
Support levels are as follows: 1.1230, 1.1185, and 1.1130.
Resistance levels are as follows: 1.1305, 1.1345, and 1.1380.
Overview Of The Fundamentals
The EUR/USD pair is consolidating at its weekly low of 1.1253, with the Dollar trading in a range across the foreign exchange market.
Market investors are in a holding pattern as the Federal Reserve of the United States is expected to publish its monetary policy decision throughout the American afternoon. Before the event, the EU did not disclose any critical macroeconomic data.
However, the United States reported November retail sales data, which increased by a paltry 0.3% month-on-month, falling short of the market’s expectations. The New York Empire State Manufacturing Index for December rose to 31.9 from 30.9, exceeding analysts’ forecasts.
European equities are neutral during this time, while Wall Street is expected to begin with slight losses, keeping with the typical calm before a central bank pronouncement.
The Federal Reserve of the United States is primarily expected to maintain interest rates while market players are awaiting news on financial support.
According to Fed Chairman Jerome Powell, they will consider whether to accelerate tapering this time, and most market players believe the Fed will more than double the $15 billion bond-buying decrease announced in November.
Policymakers will also give updated growth and inflation forecasts with the dot-plot, implying that interest rates will be raised sooner rather than later.
The pair is barely moving ahead of the Federal Reserve meeting. According to experts at Scotiabank, the Federal Reserve is primarily expected to accelerate the reduction of its bond purchases, which will cause the pair to fall near 1.10 in the short term.
Inflation is expected to fall short of the ECB’s 2% target throughout the latter portion of the projected horizon, making a hike in interest rates any sooner than late 2023 or early 2024 quite improbable. However, this would require sustained inflationary pressures of around 2%.
Experts believe that market expectations of 10 basis points in rate hikes by the end of 2022 and another 20 basis points in rate hikes by 2023 are overly optimistic. That near-term rate divergence will continue to be a primary factor of EUR underachievement over the ensuing years.