EURUSD, FOMC – Talking Points
- EURUSD pushes lower following strong US PMI report
- Traders eye 75 bps FOMC rate hike and Fed guidance
- Heavy economic calendar may put stress on EURUSD bulls
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The EURUSD rate has put in a noticeable shift in direction following last week’s European Central Bank (ECB) meeting. After rallying to just short of 1.01, the market perceived ECB President Christine Lagarde to be relatively dovish, despite pledging further rate hikes. This has seen the market significantly reprice the ECB’s terminal rate, which has acted as an anchor on EURUSD for the last few sessions.
Last week’s rate hike was the second 75 basis point increase in a row, as the European Union continues to battle inflation that remains both elevated and persistent. Despite these price pressures, the ECB indicated that monetary policy decisions will continue to be “data dependent.”
Perhaps more notably, there was a glaring change in the policy statement that may have caused the sharp pivot lower in EURUSD. The ECB statement had previously said that the Governing Council expects to raise rates further “over the next several meetings,” but the statement now reads that the Governing Council expects to “raise rates further.” While not said explicitly, this may be a subtle hint that an ECB pivot is closer than previously thought.
US Economic Calendar
Courtesy of the DailyFX Economic Calendar
The change of tone from the ECB has seen EURUSD fall over 230 pips from last week’s high, and this slide could be accelerated by the slate of risk events on the US economic calendar. Looking beyond the FOMC meeting on Wednesday, another ISM PMI print and nonfarm payrolls (NFP) on Friday could see FX volatility remain heightened.
EURUSD 8 Hour Chart
Chart created with TradingView
While EURUSD has pulled back significantly from last week’s pre-ECB highs, the longer-run bull trend remains intact – for now. There is room to run to the downside here without this trend coming into question, as trendline support sits below around 0.9760. The next 24 hours almost entirely depends on what Fed Chair the markets receive tomorrow. Should Fed Chair Powell stay true to his post-Jackson Hole agenda, the Dollar may be in for a leg higher given the recent rally in risk. While Fed terminal rate bets have cooled recently, the risks associated with rates remain skewed higher and not lower. With that in mind, EURUSD upside may be capped at or around parity prior to a Fed pivot.
Going into tomorrow’s FOMC meeting, these are the areas I am keeping an eye on:
- September swing-high near 1.0200
- Last week’s high below 1.0100
- Parity – 1.0000
- 0.9800
- Trendline support – 0.9750 – 0.9780
- YTD lows – 0.9532
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— Written by Brendan Fagan
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