All Eyes On FOMC Meeting Tomorrow. Eurozone Holds Talks

All eyes will be on tomorrow’s FOMC meeting (17th – 18th September) as this may decide whether QE will be tapered. The Dollar has remained under pressure from this event. Another catalyst is Syria, but this is likely to affect the pair in the long-term. If the diplomatic talks fail, then we could see a US military strike on Syria.  President Bashar al-Assad of Syria will hand over arms information after one month of signing the Chemical Weapons Convention. Today’s US data has not boosted the dollar, core retail sales or retail sales and core PPI was disappointing. This suggests that the Fed may not taper this month.

Meanwhile in the Eurozone, industrial output had fallen to -1.5% yesterday (12/09/2013). This still shows that the Eurozone’s recovery is still fragile. Third quarter (Q3) growth may be dented by this recent data. The Eurozone’s finance ministers will come together today to discuss any dangers that the Eurozone may have and to make sure that countries are following the bailout terms. Greece may have a third bailout next year, hence this meeting may provide some insight as to how bad the situation is. Unemployment still remains high in the Eurozone area, supporting our view that the Eurozone’s recovery is fragile. The Eurozone is also holding rates at 0.5%. This is to sustain the recovery and increase lending.

Support 2 (S2)

Support 1 (S1)

Current Price

Resistance 1 (R1)

Resistance 2 (R2)

1.28405

1.31305

1.33073

1.34183

1.37103


EUR.USD

The pair has had a reversal at the start of the month (September). The biggest data for last week was the non-farm payroll which was fairly disappointing. S1 remains to be a strong floor for the pair. The pair had tested this level when the NFP was released but failed to break it. S2 is a really strong support level and it is the lowest closing price the pair has been for nearly a year.

R1 is a strong ceiling for the pair. The pair has tested this level twice and has failed to break it. R2 is a strong roof for the pair and is the highest high the pair has been for nearly 2 years.

Technicals:  MACD (Moving Average Convergence-Divergence) and Moving Averages

  • 200-day MA (orange line) is below 50-day MA (magenta line), moving average crossover happened recently indicating a bullish signal. 200-day MA is flattening signalling a loss of momentum.
  • 200-day MA and 50-day MA should provide additional support to the pair.
  • MACD below zero, MACD line is above the red signal line.

In the short-term the pair is bullish. The Fed is unlikely to taper QE this month. Unemployment data for the US has been distorted by the labour force participation rate.  Should the Fed taper next week then the dollar should increase.  However, recent data suggests that tapering is unlikely until much later this year. Unemployment is a key problem for the Eurozone and this will be discussed today which should put pressure on the Euro. However the Euro should come out on top as tapering is unlikely.

In the long term it is hard to say where the pair will be. Syrian tensions may arise again and budget talks will be initiated if the US reaches the debt-ceiling in October. On the east side of the North Atlantic Ocean, the Euro still remains a cause of concern. The Fed is likely to taper later this year, and we may well see the dollar improve. Portugal, Spain and Greece are still having problems meeting the conditions of the troika (ECB, EC and IMF) and thus we could see the Euro drop, especially with Greece’s situation.

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Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.

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