EUR/USD has been on a solid run lower this week…will the latest monetary policy statement from the Fed keep it going or turn it on its head?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on EUR/GBP, so be sure to check that out to see if there is still a potential play!
|Equity Markets||Bond Yields||Commodities & Crypto|
|DAX: 13326.55 +0.04%
FTSE: 7474.67 -0.08%
S&P 500: 3275.52 -0.02%
DJIA: 28755.42 +0.11%
|US 10-yr 1.608% -0.033
Bund 10-YR -0.381% -0.003
UK 10-YR: 0.528% -0.025
JPN 10-YR: -0.034% 0.00
|Oil: 53.13 -0.65%
Gold: 1572.80 +0.19%
Bitcoin: 9280.46 -0.91%
Etherium: 175.54 -0.60%
Fresh Market Headlines & Economic Data:
- Coronavirus outbreak tops 6,000 cases in China, exceeding SARS epidemic
- December pending home sales fall 4.9% as supply hits a record low
- Weekly mortgage applications surge over 7% as rates fall on coronavirus
- The U.S.’ international advance trade in goods deficit increased to $68.3B in Dec. from $63.0B in Nov.
- Advanced U.S. wholesale inventories for Dec. 2019 were down -0.1% from Nov. 2019 to $675.6B
- China first quarter growth may dip below 5% as virus spreads: government economist
- Abating risk could push euro zone growth higher: ECB’s Rehn
- Consumer morale rises unexpectedly in Germany, France, Italy
- German Import prices in December 2019: -0.7% on December 2018
Upcoming Potential Catalysts on the Forex Calendar for U.S. & Asia:
- World Health Organization press conference at 4:00 pm GMT
- European Union Parliamentary Vote on Brexit at 5:00 pm GMT
- FOMC Interst Rate decision at 7:00 pm GMT
- Fed Press Conference at 7:30 pm GMT
- USMCA Trade deal signing (tentative)
- Australia Trade balance at 12:30 am GMT (Jan. 30)
- BOJ Amamiya speech at 7:00 am GMT (Jan. 30)
What to Watch: EUR/USD
Checking out EUR/USD ahead of a likely pick up in volatility due to the upcoming monetary policy statement and press conference from the Federal Reserve. There’s actually a lot of potential for volatility with the USMCA trade deal and Coronavirus news flow, but traders will likely base their next moves on the Fed statement later today.
Expectations are for the Fed to leave the fed funds rate steady at 1.5-1.75%, and traders will be watching out for comments on their economic outlook (especially now with the Coronavirus outbreak throwing in a potential wrench into global economic growth), as well as their next move with their policy of $60 billion in US Treasury bonds purchases per month.
For EUR/USD bulls, from a technical standpoint, the market is currently testing a major psychological level (1.1000) with stochastic indicating oversold conditions short-term. If the Fed sounds dovish on its outlook or plans to provide more stimulus (further rate cuts, increasing monthly bond purchases), then this could be the jump off point for a run higher in EUR/USD back to the pre-ECB meeting levels around 1.1070. If using a tight stop of just below today’s lows and the area between 1.1050 – 1.1070, then you have a very compelling potential return-on-risk.
For EUR/USD bears, any bullish commentary on the economic outlook and/or reduction of monthly bond purchases/holding interest rates may spark a bearish run. A break below today’s lows (around 1.0992) could draw in momentum sellers for a move to 1.0950 and beyond if the Fed is somewhat hawkish later today (a low probability scenario at the moment).
A more prudent setup would be to wait for a bounce up to the 1.1050 area on a hawkish Fed (buy-the-rumor, sell-the-news reaction), and if we see bearish reversal patterns there, a short position is a viable option with an acceptable short-term potential R:R if using the daily ATR of around 42 pips as a stop guide and targeting the major psychological level of 1.1000.