Most Read: Fed Keeps Rates Steady, Grows Cautious on Inflation; Gold, USD, Yields Await Powell

The U.S. dollar, as measured by the DXY index, sank more than 0.6% on Wednesday, pressured by falling U.S. yields in the wake of the Federal Reserve’s monetary policy decision. For context, the U.S. central bank left borrowing costs unchanged in their current range of 5.25% to 5.50% and retained its previous forward guidance despite rising inflation risks.

Regarding the quantitative tightening program, the Fed announced it would significantly curtail the scheme by which it is shrinking the size of its portfolio of assets. Starting next month, the amount of Treasuries allowed to roll off the balance sheet when they mature will be cut from $60 billion to $25 billion. This came as a surprise, with many bond dealers expecting a smaller taper.

Focusing on the policy statement, the document added a hawkish acknowledgment of the “lack of further progress” on disinflation, but Chair Powell’s subsequent press conference struck a more dovish tone. Many traders initially believed that the FOMC chief would come out swinging after the string of unfavorable CPI, PPI and core PCE readings in 2024, but he failed to embrace a more aggressive stance.

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While Powell did highlight a high threshold for easing and noted that it would probably take longer than initially envisioned to pivot to a looser stance, he made it sound like the bar for resuming hiking borrowing costs is even higher. Some traders, who had been predicting that rates might rise again, were caught on the wrong side of the trade after this assessment.

With the Fed failing to embrace a hawkish posture at its last gathering, government bond yields will struggle to extend their recent rally, removing a bullish catalyst from the U.S. dollar. This does not mean that interest rates will start correcting lower imminently, but rather that their upside potential may be limited going forward.

Against this backdrop, the U.S. dollar could trade sideways or with a slightly negative bias in the near term, although its prospects will also depend on the relative stance of other key central banks, such as the ECB and the Bank of England.

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EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD rallied on Wednesday, edging closer to reclaiming overhead resistance at 1.0725. Bears must staunchly defend this ceiling to thwart the momentum from picking up; a failure to do so might trigger an advance towards 1.0755. With continued strength, the focus will shift to the 1.0800 mark.

In the event of a market retracement, support is projected to emerge close to the 1.0700 mark, followed by this week’s swing low near 1.0645. Looking further down, April’s trough near the 1.0600 psychological threshold will be the next area of interest for the bearish camp.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD gained ground on Wednesday, pushing past 1.2515 but falling short of clearing trendline resistance and the 200-day simple moving average at 1.2550. Traders should watch this technical zone closely, keeping in mind that a breakout could result in a rally towards a Fib ceiling at 1.2590.

On the flip side, if sentiment shifts in favor of sellers and prices head back below 1.2515/1.2500, support is expected to materialize around 1.2430. To stave off a more pronounced selloff, bulls must tenaciously protect this floor; any lapse could precipitate a swift market downturn towards 1.2305.

GBP/USD PRICE ACTION CHART

GBP/USD Chart Created Using TradingView

Unit labor costs could influence investor expectations of a September Fed rate cut more as a leading indicator of inflation. Firms pass labor costs onto consumers in a higher-demand environment. The Fed may respond to higher labor costs with a more hawkish Fed interest rate trajectory.

However, nonfarm productivity figures will also affect the Fed rate path. Weaker-than-expected figures could signal a deteriorating macroeconomic environment and a possibly weaker consumption outlook.

Other stats include the weekly jobless claims, factory orders, and trade data. Barring an unexpected slump in US factory orders and a spike in jobless claims, the numbers will likely have a limited impact on the USD/JPY.

Short-term Forecast

Near-term trends for the USD/JPY hinge on consumer confidence numbers from Japan and the US Jobs Report. However, a marked improvement in consumer confidence across Japan could tilt monetary policy divergence toward the Yen. The Fed poured cold water on further interest rate hikes. In contrast, the BoJ could respond to an upward trend in household spending.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY return to the 158 handle would support a move toward the April 29 high of 160.209.

The BoJ Minutes, Japanese consumer confidence figures, and US labor market data need consideration.

Alternatively, if USD/JPY drops below the 154 handle, the bears may attempt to test the 50-day EMA. A fall through the 50-day EMA would bring the 151.685 support level into play.

The 14-day RSI at 56.42 suggests a USD/JPY return to the 158 handle before entering overbought territory.

• EUR/USD broke above the 1.0700 barrier following the Fed event.
• The Greenback gave away recent gains following a steady FOMC.
• The Federal Reserve left its interest rates unchanged, as anticipated.

The resurgence of downward pressure on the US Dollar (USD) encouraged EUR/USD to trim Tuesday’s losses and reclaim the area well beyond the 1.0700 hurdle on Wednesday.

That said, this Dollar’s downside momentum accelerated in the wake of the Federal Reserve’s (Fed) decision to keep its interest rates unchanged at 5.25%-5.50%, as widely anticipated, at the end of its two-day meeting on Wednesday.

Indeed, the Committee remained consistent with its Fed Funds Target Range (FFTR) at 5.25%–5.50% and aimed for borrowing cost reductions but raised concerns about inflation and potential halt in economic balance. The central bank also announced plans to slow down its balance sheet reduction pace, contrasting earlier warnings.

Adding selling pressure to the Greenback, Chair Jerome Powell argued that cutting rates won’t be suitable until the Committee is more confident that inflation is returning to the 2% target. Powell said that, with time, current policy measures will be effective in reining in inflation to the target, adding that it’s improbable that the next policy adjustment will involve a rate hike.

In the longer run, weakness in the US Dollar is expected to be short-lived due to delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later this year.

Regarding this, the FedWatch Tool monitored by CME Group indicated that the probability of a 25 bps interest rate cut at the September 18 meeting dropped to nearly 40%.

Following the FOMC event, US yields maintained their initial negative trend, although the broad macro scenario continue to emphasize the divergence in monetary policies between the Fed and other G10 central banks, particularly the European Central Bank (ECB).

Recent statements from ECB board members have hinted at the possibility of the ECB commencing its easing cycle in June, sparking speculation about three interest rate cuts (or 75 basis points) for the remainder of the year.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, strengthen expectations for a stronger Dollar in the medium term, particularly considering the increasing likelihood of the ECB cutting rates well before the Fed.

In this context, EUR/USD is expected to experience a more significant decline in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the weekly high of 1.0752 (April 26), which is ahead of the key 200-day SMA of 1.0799, and the April peak of 1.0885 (April 9). North from here comes the March high of 1.0981 (March 8), seconded by the weekly top of 1.0998 (January 11), all before the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) may signal a return to the November 2023 low of 1.0516 (November 1), which comes before the weekly low of 1.0495 (October 13, 2023). Once this area is reached, a visit to the 2023 bottom of 1.0448 (October 3) is possible before reaching the round milestone of 1.0400.

The 4-hour chart shows a sudden U-turn and the pair now targets 1.0752, ahead of the 200-SMA at 1.0761. Meanwhile, 1.0673 provides early support, ahead of 1.0601 and 1.0516. The relative strength index (RSI) jumped past 58.

• EUR/USD broke above the 1.0700 barrier following the Fed event.
• The Greenback gave away recent gains following a steady FOMC.
• The Federal Reserve left its interest rates unchanged, as anticipated.

The resurgence of downward pressure on the US Dollar (USD) encouraged EUR/USD to trim Tuesday’s losses and reclaim the area well beyond the 1.0700 hurdle on Wednesday.

That said, this Dollar’s downside momentum accelerated in the wake of the Federal Reserve’s (Fed) decision to keep its interest rates unchanged at 5.25%-5.50%, as widely anticipated, at the end of its two-day meeting on Wednesday.

Indeed, the Committee remained consistent with its Fed Funds Target Range (FFTR) at 5.25%–5.50% and aimed for borrowing cost reductions but raised concerns about inflation and potential halt in economic balance. The central bank also announced plans to slow down its balance sheet reduction pace, contrasting earlier warnings.

Adding selling pressure to the Greenback, Chair Jerome Powell argued that cutting rates won’t be suitable until the Committee is more confident that inflation is returning to the 2% target. Powell said that, with time, current policy measures will be effective in reining in inflation to the target, adding that it’s improbable that the next policy adjustment will involve a rate hike.

In the longer run, weakness in the US Dollar is expected to be short-lived due to delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later this year.

Regarding this, the FedWatch Tool monitored by CME Group indicated that the probability of a 25 bps interest rate cut at the September 18 meeting dropped to nearly 40%.

Following the FOMC event, US yields maintained their initial negative trend, although the broad macro scenario continue to emphasize the divergence in monetary policies between the Fed and other G10 central banks, particularly the European Central Bank (ECB).

Recent statements from ECB board members have hinted at the possibility of the ECB commencing its easing cycle in June, sparking speculation about three interest rate cuts (or 75 basis points) for the remainder of the year.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, strengthen expectations for a stronger Dollar in the medium term, particularly considering the increasing likelihood of the ECB cutting rates well before the Fed.

In this context, EUR/USD is expected to experience a more significant decline in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the weekly high of 1.0752 (April 26), which is ahead of the key 200-day SMA of 1.0799, and the April peak of 1.0885 (April 9). North from here comes the March high of 1.0981 (March 8), seconded by the weekly top of 1.0998 (January 11), all before the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) may signal a return to the November 2023 low of 1.0516 (November 1), which comes before the weekly low of 1.0495 (October 13, 2023). Once this area is reached, a visit to the 2023 bottom of 1.0448 (October 3) is possible before reaching the round milestone of 1.0400.

The 4-hour chart shows a sudden U-turn and the pair now targets 1.0752, ahead of the 200-SMA at 1.0761. Meanwhile, 1.0673 provides early support, ahead of 1.0601 and 1.0516. The relative strength index (RSI) jumped past 58.

• According to yesterday’s trading, the Japanese yen failed to maintain its upward rebound against the US dollar and trimmed some of its sharp gains at the beginning of the trading week.
• The yen depreciated again due to a mix of disappointing intervention from Tokyo in the forex market and renewed focus on US economic data.
• Currently, the financial markets closely monitor the yen as it may open the door to currency manipulation by other countries, especially China.
• Also, the USD/JPY exchange rate stabilized around the resistance level of 157.98 at the time of writing this analysis and plummeted to the support level of 156.05 yesterday.

Last week, the price of the Japanese yen fell to its lowest level against the US dollar since April 1990. For its part, Japan spent more than $35 billion to support the currency on Monday, according to Bank of Japan data. Aside from that, it is still unclear what officials will do.

The Bank of Japan kept its monthly bond-buying program unchanged for May. Investors are trying to determine when the Bank of Japan can gradually reduce this initiative as it will inevitably lead to a surge in Japanese government bond (JGB) yields. Analysts say, “The trend remains higher for the dollar against the yen, and we really need to see any kind of convergence in policy. Does the US bond market pick up a more sustainable bid that takes the dollar-yen away from the highs?”

Meanwhile, following hotter-than-expected wage inflation, investors abandoned hopes of a rate cut by the US Federal Reserve anytime soon. The Federal Reserve will conclude its two-day Federal Open Market Committee (FOMC) policy meeting today.

Furthermore, the futures market is not anticipating a rate cut, traders will scrutinize Fed Governor Jerome Powell’s comments in his post-meeting press conference.

In other news, there are concerns that the US allowing Japan to intervene in the forex market may prompt other markets to do the same, especially China. The last time Beijing devalued its currency by 3% was in August 2015, sparking widespread selling. Now that its Asian rivals, such as Japan and South Korea, can shout: “What about me?”

Moreover, if the value of the Chinese yuan declines, this could lead to the outbreak of a global trade war that would affect international growth prospects.

• 

USD/JPY Technical analysis and Expectations Today:

The price of the Japanese yen has decreased by 12% against the US dollar since the beginning of the year. The dollar’s recovery increased after US Labor costs brought “very unwelcome” news to the US Federal Reserve, as the US Federal Reserve’s closely monitored wage gauge added new evidence to the agenda showing that inflationary pressures in the US are increasing. Accordingly, it is expected that the US Central Bank will adhere to the tightening path, and accordingly, the upward trend for the currency pair US Dollar against the Japanese Yen (USD/JPY) will remain in place and a return to record levels is possible unless Japanese intervention in the markets occurs. Currently, the closest resistance levels for the currency pair are 158.80 and 160.00, respectively.

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• The US dollar has rallied a bit during the early hours on Tuesday as we continue to see a lot of noisy behavior.
• But ultimately this is a market that I think you have to pay close attention to in the sense that there has been whispers of intervention on Monday by the Japanese regardless, unless they change their monetary policy.

That’s a losing proposition and at best can only slow down the depreciation of the Japanese currency. Underneath we have the ¥155 level that, more likely than not, will offer a bit of a floor, as we had seen during the suspected intervention by the central bank in Tokyo. And therefore, it is an area where there should be plenty of buyers willing to get involved.

Buying on the Dip Going Forward

• 

That being said, I think you continue to look at this market through the prism of buying on the dip because this long term trend has nothing to stop it as longer term you get paid to hang on to this USD/JPY pair. And that’s exactly what’s pushed this thing so high at this point in time. It would not surprise me at all to see the US dollar trade out of the ¥160 level sometime soon, but that doesn’t necessarily mean that it will be straight up in the air from here.

I have no interest in selling this pair, and although there will probably be some volatility around the FOMC meeting, I think any pullback is more likely than not going to offer an opportunity that longer term traders will be more than willing to jump in and take advantage of. Even if we were to break down below ¥155. There’s an even harder floor down at the ¥152 level. With that being said, I remain very bullish on this market, and anything traded against the Japanese yen. I am long several different “XXX/JPY” pairs at the moment and continue to collect swap at the end of each day.

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EUR/USD Current price: 1.0675

• The ADP survey showed the private sector added 192K new positions in April.
• Market players await the Federal Reserve’s monetary policy announcement.
• EUR/USD trades with a bearish tone below the 1.0700 mark.

Financial markets are pretty quiet this Wednesday, as most markets remain closed amid the Labor Day holiday. However, such quietness will be broken in the American session, as not only does the United States (US) celebrate Labor Day on a different date, but the Federal Reserve (Fed) will announce its decision on monetary policy.

The EUR/USD pair fell to 1.0648 during Asian trading hours, later recovering towards the 1.0670 price zone, where it stays as American traders approach their desks. Wall Street closed in the red on the last trading day of April and kicked off the new month with a soft tone, as futures remain under selling pressure. Fears arose Tuesday after the US reported labor costs rose sharply in the first quarter of the year.

Ahead of the Fed’s announcement, the US released the ADP Survey on private job creation. The report showed that 192K new positions were added in April, which was above March’s increase of 184K and better than the 175K expected. The country will soon release the April ISM Manufacturing PMI, foreseen at 50, after printing at 50.3 in March. Also on the docket is the JOLTS Job Openings report for March and the S&P Global Manufacturing PMI, expected to be confirmed at 49.9.

As for the Fed, the central bank is widely anticipated to maintain rates on hold and deliver a hawkish message, given mounting inflationary pressures. A new factor, however, has appeared: economic growth has not been as solid as previously estimated. The latest macroeconomic data may impact Fed officials, although how they will react is unclear.

EUR/USD short-term technical outlook

From a technical point of view, the daily chart for EUR/USD indicates the risk skews to the downside. The pair develops far below bearish moving averages, with the 20 Simple Moving Average (SMA) providing dynamic resistance at 1.0710. At the same time, the Momentum indicator is losing its bullish slope while developing below its 100 line, suggesting limited buying interest. Finally, the Relative Strength Index (RSI) indicator consolidates around 42, supporting the bearish case.

In the near term, and according to the 4-hour chart, EUR/USD is poised to extend its slide. The pair develops below firmly bearish moving averages, with the 20 and 100 SMAs converging around the 1.0700 level. Furthermore, technical indicators resumed their slides within negative levels after a short period of consolidation, in line with a new leg south. Additional declines are likely on a break below 1.0640, the immediate support level.

Support levels: 1.0640 1.0600 1.0565

Resistance levels: 1.0710 1.0745 1.0790 

EUR/USD Current price: 1.0675

• The ADP survey showed the private sector added 192K new positions in April.
• Market players await the Federal Reserve’s monetary policy announcement.
• EUR/USD trades with a bearish tone below the 1.0700 mark.

Financial markets are pretty quiet this Wednesday, as most markets remain closed amid the Labor Day holiday. However, such quietness will be broken in the American session, as not only does the United States (US) celebrate Labor Day on a different date, but the Federal Reserve (Fed) will announce its decision on monetary policy.

The EUR/USD pair fell to 1.0648 during Asian trading hours, later recovering towards the 1.0670 price zone, where it stays as American traders approach their desks. Wall Street closed in the red on the last trading day of April and kicked off the new month with a soft tone, as futures remain under selling pressure. Fears arose Tuesday after the US reported labor costs rose sharply in the first quarter of the year.

Ahead of the Fed’s announcement, the US released the ADP Survey on private job creation. The report showed that 192K new positions were added in April, which was above March’s increase of 184K and better than the 175K expected. The country will soon release the April ISM Manufacturing PMI, foreseen at 50, after printing at 50.3 in March. Also on the docket is the JOLTS Job Openings report for March and the S&P Global Manufacturing PMI, expected to be confirmed at 49.9.

As for the Fed, the central bank is widely anticipated to maintain rates on hold and deliver a hawkish message, given mounting inflationary pressures. A new factor, however, has appeared: economic growth has not been as solid as previously estimated. The latest macroeconomic data may impact Fed officials, although how they will react is unclear.

EUR/USD short-term technical outlook

From a technical point of view, the daily chart for EUR/USD indicates the risk skews to the downside. The pair develops far below bearish moving averages, with the 20 Simple Moving Average (SMA) providing dynamic resistance at 1.0710. At the same time, the Momentum indicator is losing its bullish slope while developing below its 100 line, suggesting limited buying interest. Finally, the Relative Strength Index (RSI) indicator consolidates around 42, supporting the bearish case.

In the near term, and according to the 4-hour chart, EUR/USD is poised to extend its slide. The pair develops below firmly bearish moving averages, with the 20 and 100 SMAs converging around the 1.0700 level. Furthermore, technical indicators resumed their slides within negative levels after a short period of consolidation, in line with a new leg south. Additional declines are likely on a break below 1.0640, the immediate support level.

Support levels: 1.0640 1.0600 1.0565

Resistance levels: 1.0710 1.0745 1.0790 

• The dollar resumed its advance ahead of the Federal Reserve statement later today after early week losses that had pushed GBP/USD to resistance at 1.2570 and back into its broader bearish channel to support at 1.2467 at the time of writing.
• Developments still suggest that the Bank of England may be thinking of cutting rates soon.
• However, the fact that services inflation is approaching 6.0% has prompted analysts at BCA Research to warn investors that investors are still expecting a lot of rate cuts in 2024.

GBP/USD will be looking to the Fed’s rate decision today, where policymakers are likely to reiterate the strong data that means no imminent rate cuts are likely. Concurrently, the market has already digested the idea that rates won’t be rising any time soon, and now sees December as the start date. Given the amount of repricing – and the strength of the dollar – it’s hard to see how the Fed could deliver anything new that would materially lift the dollar.

Consequently, this should keep GBP/USD relatively well supported into the new month.

The US non-farm payrolls update on Friday will be the last major market event for the week, and another reading above consensus could lead to a rise in the price of the US dollar and a decline in “high beta” currencies as markets begin to consider the possibility of the first cut occurring only in 2025. But as “Expectations are already high – and rising – in the face of big data surprises,” analysts at Barclays note.

Any miss on the numbers could accelerate the recent GBP/USD and other dollar-based currency rebounds.

In other news, the S&P 500 closed down 1.6% on Tuesday, the Nasdaq lost 2%, and the Dow Jones fell 570 points as investors assessed economic data showing rising labor costs and falling consumer confidence ahead of the Fed decision. Labor costs in the US rose more than expected in the last quarter, by 1.2%, suggesting rising wage pressures, and US consumer confidence fell to its lowest level in over a year and a half.

In earnings news, McDonald’s stock fell 0.2% despite revenue falling below estimates due to the boycott in the Middle East. Also, GE Healthcare stock fell by 14.3% after a decline in first-quarter revenue. Coca-Cola shares lost 0.4% despite beating estimates and improving its outlook. Conversely, 3M stock jumped 4.9% on upbeat results and Eli Lilly stock rose 6% after earnings per share beat expectations for higher weight-loss drug sales. Meanwhile, Amazon, AMD, Starbucks, and PayPal are scheduled to report after the closing bell. In April, the S&P 500 and Nasdaq fell 3% each, while the Dow Jones fell 4.3%, marking its worst month since September 2022.

• 

Technical forecasts for the GBP/USD pair today:

We still see that the general downward trend for the price of the British pound against the US dollar GBP/USD is still continuing and may remain so as long as the price is stable around and below the support level of 1.2500. Currently, the opportunity to move to break the psychological support of 1.2300, most prominent on the daily chart is strongly present, as the price of the US dollar is still receiving strong momentum from the demand for it as a safe haven. In addition, the US Federal Reserve is far from the pace of reducing interest, in contrast to the matter with the Bank of England. On the other hand, the current downward trend will not be broken without the bulls moving the currency pair above the resistance 1.2720.

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USD/JPY Forecast Video for 03.03.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar has rallied a bit during the trading session on Thursday, as we are threatening to reach the ¥137.50 level sometime soon. This is an area that has been important resistance previously, as well as important support, so it should not be a huge surprise that we would be attracted to it. The 50-Day EMA sits well below the market but looks as if it’s ready to cross the 200-Day EMA which would trigger the “golden cross indicator” that a lot of longer-term traders pay so much attention to.

Pullbacks at this point in time should continue to see support near the ¥135 level, as well as the 200-Day EMA, so any pullback at this point in time will more likely than not be short-lived in nature and thought of as a potential buying opportunity. It looks as if the trend has turned higher again, and it is probably worth noting that we formed a bit of a double bottom down at the 50% Fibonacci level from the big move higher.

That doesn’t mean that it’s going to be easy to break higher, and occasionally we will see a lot of noisy behavior. In fact, I think that we are in one of those phases, but it’s worth noting that the Friday candlestick was a massive shot higher, and we haven’t even broke down below the bottom of it.

In other words, there are a lot of people looking to get involved here, so I think I look at this through the prism of a “buy on the dip” type of market, and I think that continues to be the case going forward as there are so many reasons to believe that the Japanese yen will continue to get hammered. In fact, it’s not until we break down below the ¥132.50 level that I would consider the upward move starting the short the pair. Ultimately, this is a market that should end up going much higher over the longer term, but it does not necessarily mean that it’s going to be easy to get the higher prices.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

• EUR/USD entered into a consolidation phase following Tuesday’s sharp decline.
• The technical outlook highlights a bearish tilt in the near term.
• The Fed is widely expected to leave the policy rate unchanged. 

EUR/USD came under heavy bearish pressure in the American session on Tuesday and closed the day sharply lower. The pair stays in a consolidation phase below 1.0700 early Wednesday as markets gear up for key data releases from the US and the Federal Reserve’s (Fed) monetary policy decisions.

The US Dollar (USD) started to gather strength on Tuesday after the Bureau of Labor Statistics reported that the Employment Cost Index rose 1.2% in the first quarter, above the market expectation and the previous quarter’s reading of 1% and 0.9%, respectively. Additionally, the currency benefited from the selloff in major US equity indexes.

The US economic docket will feature ADP Employment Change data for April. Markets forecast an increase of 175,000 in private sector payrolls following the 184,000 increase recorded in March. The market reaction to the ADP employment data is likely to be straightforward, with an upbeat print helping the USD edge higher, and short-lived.

Later in the session, the ISM Manufacturing PMI is expected to edge lower to 50 in April from 50.3. The preliminary S&P Global Manufacturing PMI for April declined to 49.9 and caused the USD to weaken against its rivals. In case the ISM Manufacturing PMI comes in below analysts’ estimate, the USD could have a hard time outperforming its rivals.

Most importantly, the Fed will announce policy decisions and Chairman Jerome Powell will speak on the policy outlook at a press conference. The Fed is widely expected to leave the policy rate unchanged at 5.25%-5.5% range. According to Wall Street Journal reporter Nick Timiraos, the Fed will emphasize that they are prepared to hold rates steady for longer than previously anticipated, due to strong inflation readings in the first quarter of the year.

Investors will also pay close attention to possible changes to the quantitative tightening (QT) strategy. The Fed is expected to announce that they will slow the pace of QT. In case the Fed postpones this decision, citing inflation concerns, the initial reaction could provide an additional boost to the USD.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 50 and EUR/USD closed the last five 4-hour candles below the 20, 50 and 100-period Simple Moving Averages (SMA), reflecting the bearish shift.

On the downside, 1.0650 (static level) aligns as interim support before 1.0600 (static level) and 1.0560 (static level from November). Resistances are located at 1.0700 (Fibonacci 23.6% retracement, 100-period SMA, 50-period SMA), 1.0750 (Fibonacci 38.2% retracement) and 1.0765 (200-period SMA). 

 

• EUR/USD entered into a consolidation phase following Tuesday’s sharp decline.
• The technical outlook highlights a bearish tilt in the near term.
• The Fed is widely expected to leave the policy rate unchanged. 

EUR/USD came under heavy bearish pressure in the American session on Tuesday and closed the day sharply lower. The pair stays in a consolidation phase below 1.0700 early Wednesday as markets gear up for key data releases from the US and the Federal Reserve’s (Fed) monetary policy decisions.

The US Dollar (USD) started to gather strength on Tuesday after the Bureau of Labor Statistics reported that the Employment Cost Index rose 1.2% in the first quarter, above the market expectation and the previous quarter’s reading of 1% and 0.9%, respectively. Additionally, the currency benefited from the selloff in major US equity indexes.

The US economic docket will feature ADP Employment Change data for April. Markets forecast an increase of 175,000 in private sector payrolls following the 184,000 increase recorded in March. The market reaction to the ADP employment data is likely to be straightforward, with an upbeat print helping the USD edge higher, and short-lived.

Later in the session, the ISM Manufacturing PMI is expected to edge lower to 50 in April from 50.3. The preliminary S&P Global Manufacturing PMI for April declined to 49.9 and caused the USD to weaken against its rivals. In case the ISM Manufacturing PMI comes in below analysts’ estimate, the USD could have a hard time outperforming its rivals.

Most importantly, the Fed will announce policy decisions and Chairman Jerome Powell will speak on the policy outlook at a press conference. The Fed is widely expected to leave the policy rate unchanged at 5.25%-5.5% range. According to Wall Street Journal reporter Nick Timiraos, the Fed will emphasize that they are prepared to hold rates steady for longer than previously anticipated, due to strong inflation readings in the first quarter of the year.

Investors will also pay close attention to possible changes to the quantitative tightening (QT) strategy. The Fed is expected to announce that they will slow the pace of QT. In case the Fed postpones this decision, citing inflation concerns, the initial reaction could provide an additional boost to the USD.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 50 and EUR/USD closed the last five 4-hour candles below the 20, 50 and 100-period Simple Moving Averages (SMA), reflecting the bearish shift.

On the downside, 1.0650 (static level) aligns as interim support before 1.0600 (static level) and 1.0560 (static level from November). Resistances are located at 1.0700 (Fibonacci 23.6% retracement, 100-period SMA, 50-period SMA), 1.0750 (Fibonacci 38.2% retracement) and 1.0765 (200-period SMA). 

 

• The euro has rallied a little bit against the British pound as we have tested a major area of support right around the 0.8525 level.
• Ultimately, this is a market that has been consolidating for some time, but recently has seen a major plunge.
• With that being the case, it looks as if traders are trying to do everything, they can to find a little bit of value here, and therefore, it would not surprise me at all to see this market rally.
• However, this pair doesn’t move very quickly most of the time, so that is something worth thinking about.

That being said, I think the 0.86 level is an area that you need to pay close attention to as it could be an area of resistance. We also have the 200 day EMA sitting there as well. And that, of course, comes into the picture as a potential barrier that will be very difficult to overcome. Underneath we have the 0.85 level, an area that has previously shown itself to be supportive.

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Round Number Attracts

We also have to keep in mind that it is a large, round, psychologically significant number that in and of itself does take a certain amount of attention into the EUR/GBP market as well, regardless. When I look at longer term charts, the 0.85 level is an area that a lot of people have paid attention to for a very long time. This is an area that goes back years, so it is worth paying close attention to if we get there anytime soon.

In other words, we could be close to a major swing low, but that doesn’t mean you jump in right away. Remember, this pair is rather choppy under the best of circumstances, so you do have to look at this through a longer term kind of basing pattern situation. This can take a lot of time, and therefore you have to be very patient with this kind of pair, where the two economies are so intertwined at this point.

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