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EURUSD Rate Rebound Fizzles Ahead of Meeting Minutes for FOMC and ECB

EURUSD Rate Rebound Fizzles Ahead of Meeting Minutes for FOMC and ECB

David Song,
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EUR/USD Rate Talking Points

The recent rebound in EUR/USD appears to be stalling as the European Central Bank (ECB) prepares to release the account of the September 12 meeting, and the Euro may struggle to retain the advance from the start of the month as there appears to be a growing dissent within the Governing Council.

EURUSD Rate Rebound Fizzles Ahead of Meeting Minutes for FOMC and ECB

EUR/USD fails to extend the series of higher highs and lows from the previous week, with the exchange rate at risk of giving back the advance from the monthly-low (1.0879) as the latest stimulus package unveiled by President Mario Draghi comes under increased scrutiny.

In turn, the account of the September meeting may reveal a growing rift within the Governing Council especially as Bundesbank Vice-President Sabine Lautenschlager unexpectedly resigns from the ECB’s Executive Board.

More recently, Governing Council member Robert Holzmann has criticized the zero interest rate policy (ZIRP) in Europe, with the official arguing that “loose monetary policy leads to less growth and lower productivity.”

It remains to be seen if the Governing Council will continue to push monetary policy into uncharted territory as the central bank appears to be running out of tools, and recent remarks from Chief Economist Philip Lane suggest the board will seek fiscal support amid the “the positive impact of government spending.”

As a result, the ECB may move to the sidelines at its next meeting on October 25, but the Governing Council may continue to endorse a dovish forward guidance as officials reiterate that the central bank “continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.”

Image of Federal Reserve interest rate forecast

In contrast, the Federal Open Market Committee (FOMC) Minutes may do little to influence the near-term outlook for EUR/USD as Fed officials see the benchmark interest rate around 1.50% to 1.75% through 2020.

Despite the growing divide at the Federal Reserve, it seems though the FOMC will take a more gradual approach in managing monetary policy as Chairman Jerome Powell insists that “the future course of monetary policy will depend on how the economy evolves.”

With that said, the ECB’s reliance on non-standard measures may produce headwinds for EUR/USD especially as the FOMC appears to be approaching the end of its rate easing cycle.

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EUR/USD Rate Daily Chart

Image of EURUSD 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.
  • Moreover, recent developments in the Relative Strength Index (RSI) instills a bearish outlook for EUR/USD as the oscillator snaps the upward trend from September.
  • Lack of momentum to close above the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) may bring the downside targets back on the radar, with failure to preserve the monthly opening range raising the risk for another run at the Fibonacci overlap around 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement).

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.