Euro Gains as the US Dollar Frets ahead of the Fed after Benign CPI. Higher EUR/USD?

Euro, EUR/USD, US Dollar, FOMC, Fed, ECB, EUR/NOK, Crude Oil, Gold - Talking Points

• Euro has steadied slightly lower going into Wednesday’s trade

• US CPI might have given the green light for the Fed to pause/skip hike

• The post-FOMC decision press conference might hold the key to market direction

The Euro dipped today after the recovery from its late May low on Tuesday and going into the Federal Reserve meeting today. The European Central Bank (ECB) monetary policy review will follow tomorrow.

Yesterday saw US CPI soften to 4.0% year-on-year to the end of May rather than the 4.1% anticipated and 4.9% prior. Core CPI for the same period beat forecasts of 5.2% printing at 5.3% against 5.5% previously.

The data may confirm the market’s perception that the Fed may ‘skip’ a hike today but might lift rates again when they congregate in July or September.

The focus of attention is likely to be on the post-decision press conference and Fed Chair Jerome Powell’s language for guidance on the rate path.

The ECB are anticipated by interest rate markets to hike by 25 basis points to try to rein in inflation of over 6%.

Elsewhere in Europe, the Norwegian Krone is eyeing a 2-month high against EUR ahead of the Norges Bank deposit rate decision next week.

Last week’s CPI data showed an acceleration to 6.7% year-on-year to the end of May for the Nordic nation. Rising price pressures could see the Norges Bank turn more hawkish at its gathering next week.

Crude oil had a solid session on Tuesday and has held onto the gains going into Wednesday trading. The WTI futures contract is near US$ 69.50 bbl while the Brent contract is oscillating around US$ 74.50 bbl at the time of going to print.

Treasury yields have been ticking higher so far this week and it appears to have undermined the gold price, currently trading near US$ 1,960.

North American equity indices clocked up decent gains into cash market close with the Russell 2000 leading the way, notching up a 1.23% gain. Somewhat ironically, the higher Wall Street travels, the higher the futures market price the Fed funds rate for December.

APAC equities have been mixed on Tuesday with Australian and Japanese markets climbing over a per cent while Hong Kong and South Korean indices slid lower.

The Fed decision and subsequent press conference will be crucial later today, but UK data and US PPI gauges will also be keenly watched.

EUR/USD TECHNICAL ANALYSIS

EUR/USD has recovered from the 10-week low seen last week at 1.0635. This was only a fraction below the 78.6% Fibonacci Retracement of the move from 1.0516 to 1.1096 at 1.0640.

This may see the 1.0635 – 40 area set up as a potential support zone ahead of the prior lows at 1.0525, 1.0516, 1.0483 and 1.0443.

On the topside, resistance could be near the breakpoints of 1.0831 and 1.0942.

In April and May, a series of highs were seen in the 1.1075 – 95 area and this might offer a resistance zone. In the bigger picture, a clean take out of these levels may confirm the resumption of the ascending trend.

These tops created an extension of a Double Top formation that heralded the sell-off last month. It should be noted though that past performance is not indicative of future results. The neckline from this formation is at 1.0942 and it might offer resistance.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Written by Daniel McCarthy, Strategist for DailyFX