Euro stabilizes above 1.1100 as focus shifts to Fed

VaselineSeptember 18, 2024

0 4 minutes read

EUR/USD is moving sideways above 1.1100 in the European session.
The Fed will announce monetary policy decisions later in the day.
The pair faces two-way risk amid uncertainty over the size of the Fed’s rate cut.

EUR/USD posted small losses on Tuesday as the US dollar (USD) recovered modestly. The pair is holding steady above 1.1100 on Wednesday morning as investors brace for Federal Reserve (Fed) monetary policy announcements.

EURO PRICE This week

The table below shows the percentage change of the euro (EUR) against the main listed currencies this week. The euro was strongest against the Japanese yen.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.49%	-0.63%	0.69%	-0.06%	-1.10%	-0.91%	-0.44%
EURO	0.49%		-0.20%	1.12%	0.39%	-0.68%	-0.49%	0.00%
GBP	0.63%	0.20%		1.25%	0.59%	-0.48%	-0.27%	0.22%
JPY	-0.69%	-1.12%	-1.25%		-0.74%	-1.72%	-1.57%	-1.18%
CAD	0.06%	-0.39%	-0.59%	0.74%		-1.13%	-0.86%	-0.49%
AUD	1.10%	0.68%	0.48%	1.72%	1.13%		0.20%	0.68%
NZD	0.91%	0.49%	0.27%	1.57%	0.86%	-0.20%		0.49%
CHF	0.44%	-0.00%	-0.22%	1.18%	0.49%	-0.68%	-0.49%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose Euro from the left column and move along the horizontal line to the US Dollar, the percentage change shown in the box will be EUR (base)/USD (quote).

Slightly better-than-expected US retail sales data helped the USD hold up in Tuesday’s US session and prevented EUR/USD from building on Monday’s gains.

Later in the day, the Fed is expected to cut its policy rate. However, the size of the rate cut is still up in the air. According to the CME FedWatch tool, markets are currently pricing in a 61% chance of a 50 basis point (bps) rate cut and a 39% chance of a 25 basis point cut.

Market positioning suggests the USD faces a two-way risk heading into the event. A 50 bps cut could trigger an immediate reaction dollar sell-off and boost EUR/USD. On the other hand, the USD could gather strength and drag the pair lower if the Fed opts for a 25 bps rate cut.

Investors will also pay close attention to the revised Summary of Economic Forecasts (SEP), the so-called dot-plot. In addition to the rate decision, the number of rate cut forecasts the dot chart shows for the rest of the year could influence the valuation of the USD.

If the Fed cuts the policy rate by 25 bps, but the dot chart highlights a total cut of another 75 bps in the other two policy meetings, the USD may struggle to outperform its rivals. Following the Fed’s policy announcements, Chairman Jerome Powell will answer questions at a press conference starting at 1830 GMT.

EUR/USD Technical Analysis

The short-term technical outlook points to an uptrend, with the relative strength index (RSI) indicator on the 4-hour chart holding above 60. On the upside, 1.1160 (static level) lines up as first resistance ahead of 1.1200 and 1.1275 (July 18, 2023, high).

Looking south, the 23.6% Fibonacci retracement level of the last uptrend and the 100-period Simple Moving Average (SMA) form a strong support zone at 1.1100-1.1085 ahead of 1.1040-1.1050 (Fibonacci retracement period 38.2%, 200).

Frequently asked questions about the dot plot

“Dot Plot” is the popular name for interest rate forecasts by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. They are published in the Summary of Economic Projections, a report in which FOMC members also publish their individual projections for economic growth, the unemployment rate, and inflation for the current year and beyond. The document consists of a chart showing interest rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the forecast range and median for each indicator. This makes it easier for market participants to see how policy makers expect the US economy to perform in the short, medium and long term.

The US Federal Reserve publishes the “Dot Plot” once every two meetings, or four out of eight scheduled annual meetings. The Summary of Economic Projections report is published together with the monetary policy decision.

The “Dot Plot” provides a comprehensive view of expectations from Federal Reserve (Fed) policymakers. Because the projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest rate levels, market participants can see where policymakers expect rates to go and the overall direction of monetary policy. As the projections are published quarterly, the “Dot Plot” is widely used as a guide to find out the terminal rate and the possible timing of a policy pivot.

The most market moving data in the “Dot Plot” is the federal funds rate projection. Any change compared to previous projections is likely to impact the valuation of the US dollar (USD). In general, if the “Dot Plot” shows that policy makers are expecting higher interest rates in the near term, this tends to be bullish for the USD. Also, if forecasts point to lower rates in the future, the USD is likely to weaken.

VaselineSeptember 18, 2024

0 4 minutes read

EURO PRICE This week

EUR/USD Technical Analysis

Frequently asked questions about the dot plot

Vaseline

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