EUR/USD Rate Talking Points
EUR/USD retraces the decline from earlier this month on the back of US Dollar weakness, but the opening range for November casts a bearish outlook for the exchange rate amid the failed attempt to clear the October high (1.1180).
EUR/USD Reaction to Trump-Powell Meeting Mired by Monthly Open Range
EUR/USD extends the rebound from the monthly low (1.0989) as US President Donald Trump meets with Federal Reserve Chairman Jerome Powell to discuss “interest rates, negative interest, low inflation, easing, Dollar strength & its effect” on the economy.
It seems as though the Trump administration will put increased pressure on the Federal Open Market Committee (FOMC) to reverse the four rate hikes from 2018 amid signs of a slowing economy.
In fact, the Atlanta Fed GDPNow model now projects a 0.3% rate of growth for the fourth quarter versus 1.0% on November 8, and the central bank may keep the door open to further embark on its rate easing cycle as “weakness in global growth and trade developments have weighed on the economy and pose ongoing risks.”
However, recent remarks from Fed officials suggest the central bank will revert to a wait-and-see approach at its last meeting for 2019 as Chairman Powell and Co. “see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth.”
At the same time, Boston Fed President Eric Rosengren, a 2019 voting member on the FOMC, warns about the “side effects” of low interest rates and argues that the central bank wouldn’t have “that much room before short term interest rates would hit zero” if an economic slowdown occurs.
The comments suggest that a growing number of Fed officials will tame bets for another rate cut in 2019, but the European Central Bank (ECB) may take a different approach as Chief Economist Philip Lane insists that monetary policy in the Euro area is “not particularly a super loose policy.”
In addition, Governing Council member Bostjan Vasle states that there’s “still room” to provide additional monetary support as the central bank struggles to achieve its one and only mandate for price stability.
It remains to be seen if the ECB will take further steps to insulate the monetary union as Christine Lagarde takes the helm, and the account of the October meeting may reveal a growing divide within the Governing Council as Bundesbank President Jens Weidmann contends that Euro area interest rates are close to the lower bound.
With that said, EUR/USD may face a more bearish fate over the remainder of the year as the FOMC moves away from its rate easing cycle while the ECB reestablishes its asset-purchase program.
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EUR/USD Rate Daily Chart
Source: Trading View
- Keep in mind, the broader outlook for EUR/USD remains tilted to the downside as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with Euro Dollar trading to a fresh yearly-low (1.0879) in October.
- The recent correction in EUR/USD appears to have run its course as the advance from the yearly-low (1.0879) fails to produce a test of the Fibonacci overlap around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement).
- At the same time, the monthly opening range fosters a bearish outlook for EUR/USD amid the lack of momentum to test the October-high (1.1180).
- However, the failed attempt to test the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) has generated a fresh series of higher highs and lows in EUR/USD, with a break/close above the 1.1100 (78.6% expansion) handle bringing the 1.1140 (78.6% expansion) region back on the radar.
- Will keep a close eye on the Relative Strength Index (RSI) as it snaps the upward trend from September and appears to be carving a bearish formation.
- Waiting for a break/close below the overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) to favor a run at the 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement) region.
For more in-depth analysis, check out the 4Q 2019 Forecast for Euro
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— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.