- EUR/USD advances strongly, surpassing the 0.9980 mark, awaiting the ECB’s decision.
- The US trade deficit narrowed, although it failed to boost the greenback.
- The Fed’s monetary policy makers reiterated their commitment to reining in inflation, while stating that interest rates will remain in tightening territory.
The EUR/USD advanced strongly on Wednesday, spurred on by a slight risk boost in the North American session, with US equities rising while US Treasury yields retreat from all-time highs as traders of the market are focused on the path of the rates of the US Federal Reserve.
EUR/USD opened near daily lows, away from 0.9900, and fell towards the daily low of 0.9880, before bouncing back towards parity at 1.0000. However, the principal fell back to current exchange rates. At the time of this writing, the EUR/USD is trading at 0.9982, well above its opening price.
Previously released US data, in particular the trade balance, showed that the US deficit narrowed in July, the US Commerce Department reported. The figures revealed that the deficit fell 12.6% to 70.6 billion dollars, while exports of goods and services rose 0.2%.
Meanwhile, a slew of speakers from the Federal Reserve is grabbing headlines ahead of the blackout period, which begins on September 10. The first to take the podium was the Cleveland Fed, Loretta Mester, who stated that the market should focus on the path of interest rates, rather than “one meeting in particular”, while adding that the magnitude of the rate hike you want, it would be decided at the meeting.
Later, Fed Vice President Lael Brainard said the Fed will maintain tighter monetary policy conditions “for as long as it takes to bring down inflation.” Brainard added that while July’s inflation numbers were positive, the Fed needs to see “several months of low monthly inflation” to be confident that inflation is actually cooling.
Meanwhile, the Fed’s Beige Book reported that some companies see some easing of labor shortages and price pressures.
According to the Fed report, “general labor market conditions remained tight, although nearly all districts noted some improvement in labor availability.” Regarding price pressures, nine districts reported some degree of moderation.
What to do
On Thursday, the European Central Bank will reveal its monetary policy decision, with most analysts expecting a 75 basis point rate hike. However, researchers from 12 major banks, eight of them expect a 75 basis point hike, while the other four are undecided between a 50 or 75 basis point hike.
EUR/USD Price Analysis: Technical Outlook
EUR/USD bounced off weekly lows, below the 0.9900 figure, while the Relative Strength Index (RSI) heads towards the 50 mid-line. EUR/USD traders should note that A divergence has formed between the price action and the RSI. Therefore, the price action of the EUR/USD on Wednesday is a reaction to the aforementioned.
Therefore, the first resistance of the EUR/USD would be the parity. A break above will expose the 20-day EMA at 1.0039 and 1.0100. On the other hand, the first support of the EUR/USD would be 0.9900. Once broken, the next support would be the low for the year at 0.9863 and 0.9800.
Technical levels
Source: Fx Street
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