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EUR/USD Price Action Eyes Inflation Data Ahead of Fed

EUR/USD Price Action Eyes Inflation Data Ahead of Fed

2019-07-29 19:36:00
Rich Dvorak, Junior Analyst
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EURUSD PRICE ACTION TURNS TO EUROZONE INFLATION, US CONSUMER CONFIDENCE DATA

  • Spot EURUSD currency traders shift focus to Tuesday’s release of Eurozone and US inflation numbers in addition to US Consumer Confidence
  • EURUSD implied volatility appears low and indicates attention remains fixated on the upcoming July Fed meeting
  • Find out how IG Client Sentiment can be used to identify the bullish and bearish biases of forex traders and reveal potential forex trading opportunities

The EURUSD Forex Economic Calendar is stacked for Tuesday’s trading session with high-impact data slated to cross the wires out of the Eurozone and US. Updated readings on GDP, inflation and consumer confidence are expected, which all have potential to spark volatility in spot EURUSD.

EURUSD FOREX ECONOMIC CALENDAR

EURUSD Forex Economic Calendar Event Risk

Despite the several economic indicators due for release that typically move the market’s needle, Tuesday’s data dump out of the Eurozone and US is anticipated to be broadly overlooked by forex traders judging by EURUSD implied volatility.

EURUSD IMPLIED VOLATILITY SUBDUED DESPITE ECONOMIC CALENDAR EVENT RISK

EURUSD Implied Volatility

EURUSD overnight implied volatility was just clocked at 4.85% and is noticeably below the 12-month average of 6.10%. The subdued reading for EURUSD overnight implied volatility suggests that Eurozone CPI and US Core PCE inflation data is chalked up to be non-events. As such, there may be little reaction or follow through in spot EURUSD. This can be explained principally by the looming July Fed meeting scheduled for the following day which is expected to be the dominant market theme this week.

EURUSD RISK REVERSAL POINTS TO DOWNSIDE BIAS

EURUSD Risk Reversal Chart

Interestingly, the demand for spot EURUSD downside protection is quickly returning as suggested by. This could be explained by the fact that US economic data has come in hotter-than-expected as of late, whereas Eurozone economic data has broadly disappointed to the downside, according to recent Citi Economic Surprise Index readings.

EURUSD PRICE CHART: DAILY TIME FRAME (DECEMBER 16, 2018 TO JULY 29, 2019)

Spot EURUSD Price Chart Implied Volatility Technical Analysis

That said, spot EURUSD is estimated to fluctuate within a 56-pip range between 1.1112-1.1168 during Tuesday’s trading session with a 68% statistical probability calculated from EURUSD overnight implied volatility of 4.85%. Moves to the downside may prove short lived considering major technical support at the 1.1100 mark in addition to the outstanding risk that the Fed shocks markets with a firm monetary policy stance on Wednesday.

Yet, there is the possibility that EURUSD overnight implied volatility is underpriced and the upcoming Eurozone and US economic data will spark a larger-than-expected move in the spot market. If Eurozone inflation data comes in below market consensus, the need for future monetary stimulus hinted at by ECB President Draghi last week could be solidified and would likely send spot EURUSD lower. Then again, a move lower may be reversed if US inflation and consumer confidence data disappoint as well seeing that it could encourage greater expectations for an aggressive Fed rate cut later this week.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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