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TALKING POINTS – EURUSD FORECAST, EURUZONE DATA, FED MONETARY POLICY

  • EURUSD may fall after Eurozone price growth data is published
  • Losses may be reversed if Powell’s speech contains dovish tones
  • Slowing global growth prospects pressuring central bank hawks

See our free guide to learn how to use economic news in your trading strategy!

EURUSD will likely experience higher-than-usual volatility in the next 24 hours as critical Eurozone CPI data is published along with US economic data and a speech from Fed Chairman Jerome Powell. Since economic data out of Europe has been tending to underperform relative to economists’ expectations for a few months now, it is likely price growth data will fall in-line with prevailing trends.

Disappointing US ISM data earlier today sent the US Dollar lower across all its major counterparts as markets priced in a greater probability of a cut from the Fed. The USD Index subsequently experienced an almost 0.50 percent drop. EURUSD promptly spiked and reentered 18-month descending resistance not reached since March. The critical question then is whether or not the roof will hold.

If market conditions sour and the outlook continues to worsen to such a degree that the Fed cuts interest rates, by that point market participants would likely be already putting a premium on liquidity over chasing yields. The US Dollar in this regard may actually be buoyed by investors looking to reduce their exposure cycle-linked assets and instead are searching for the warm embrace of the world reserve currency.

EURUSD would then likely retreat from its bold jump and continue trading below the 18-month roof. “It is also worth noting that the fundamental outlook for Europe still remains grim, and the upcoming ECB meeting will not likely have the feathers of hawks be the quill with which monetary policy is written. Dovish undertones from the ECB are expected in addition to a downward revision for European growth prospects.

CHART OF THE DAY: DXY USD INDEX PLUNGES, EURUSD TESTS 18-MONTH RESISTANCE FOR THE FIRST TIME SINCE MARCH

Chart Showing EURUSD, USD Index

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter