EUR/USD Under Downward Pressure Ahead of FOMC Minutes

Talking Points

- The Euro-Zone economy is expected to expand by 2.1% year-on-year, second quarter figures are expected to confirm.

- While growth will please the central bank, the lack of any price pressures will guide the EUR lower.

- Today’s FOMC minutes may add extra pressure on the single currency

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The Euro may come under additional downside pressure later in the session despite the economy expanding strongly. While the central bank may be pleased that its loose monetary policy is stoking growth, a lack of inflation within the zone will stay the ECB’s hand despite calls for a gradual tightening of monetary policy. Thursday’s ECB minutes may well shed more light on the central bank’s current thinking.

And the FOMC minutes later today may add to the downward pressure on the EUR if talks surfaces of any ‘quantitative tightening.’ One Federal Reserve official, New York Fed’s William Dudley, said yesterday that the Fed may soon look to shrink its USD4.5 trillion balance sheet, a move that is expected to send US interest rates, and the USD, higher.

After touching a two-and-a-half high of 1.18470 last Friday, EURUSD has tailed away on a combination of a slightly higher USD - driven by slightly better than expected CPI data and strong retail sales – and expectations that inflation in the Euro-Zone is set to remain lower for longer. Looking at the chart below, the recent August 11 high is expected to cap any upside movement, leaving Tuesday’s 1.16870 low vulnerable ahead on the July 26 low of 1.16140.

EURUSD Price Chart: Monthly/Daily Timeframe (August 16, 2017)

Chart by IG

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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