It was a quiet day for financial and forex markets. And it seems the calm before the storm approach is surfacing on the FX markets with little moves recorded on the majors. The subject currently continues to hold the 50MA against the dollar as the focus remains on the FOMC meeting tomorrow. Clearly, the focus is not on the monetary policy settings-but all the participants on the forex markets are waiting for talking about tapering.
Earlier in April and May, we thought that in the June Fed meeting, we could hear about the talking about tapering. Now we think this might delay one more quarter. Analysts split over tapering timing.
Looking at the fixed income markets, the US 10year yields reversed their last week’s losses and closed at 1.50%. The latest inflation number at 5% dragged the yields 10bps lower last week, whereas at the beginning of this week, they rallied 5bps on Monday. The market is expecting talk of “tapering” going to airing on Wednesday when the Fed delivers its policy settings.
ECB quick review:
As expected, key policy rates were unchanged, and there was no change in forwarding guidance on rates too. Besides, the total envelope of the PEPP remains at €1,850 billion until at least the end of March 2022. And the Governing Council expects net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year. The Governing Council raise the growth and inflation outlook for 2021 and 2022.
Overall, the tone was optimistic and EURUSD already priced in the optimistic tone. Hence, EURUSD remains in the consolidation territory. I hope this week’s FOMC could alter the trend.
In case of Fed prepare for tampering, USD could outperform against the low-yields currencies like Yen, Frank, and our subject currency Eur; and also against the commodity currencies like Aussie and Kiwi dollars. If the bulls failed to get the boost from the Fed, the EURUSD could rally towards 1.2330 initially before eyeing at 1.2450 levels-which is our favorite spot to ignite a sell trade.
Before you take a long position ahead of post-Fed, we request traders to check the momentum on the US rates and USDT yields. Nowadays, the G10 FX is not going to trade on their own merit, but USD movement is the only available driving factor.
We will be worries if the EURUSD fails to close above 1.2350 in 1 or 2 weeks. In this case, 1.1700 and 1.1500 are the following lower targets to watch out for.
Flipside further weakness in the dollar could propel the EUR higher towards 1.2350 and 1.2450. Looking at EUR crosses, EURCAD and EURCHF offer a better risk-reward ratio. Interestingly EURAUD traced out a death cross pattern on the weekly chart. 1.6000 is the key level to focus on for EURAUD.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
What is your Technical View?
Do you have a different idea? Please leave us a comment and get an answer from our professional analysts