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EUR/USD Short Term View Ahead of Draghi and Fed Speeches

EUR/USD Short Term View Ahead of Draghi and Fed Speeches

Oded Shimoni, Junior Currency Analyst

Talking Points:

- EUR/USD trading above key support at 1.2200 after bouncing higher from its 200 day SMA

- Speeches from ECB’s Draghi and Fed’s Tarullo, Kaplan in focus ahead

- Fed speak could push US Dollar higher on hawkish rhetoric

The EUR/USD is edging higher following the FOMC rate decision, after the pair bounced off its 200 day SMA to trade above a key resistance zone between 1.1180-1.1220.

Looking ahead, monetary policy is back in focus with an economic docket full of key speeches, with Draghi on tap as well.

Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.

EUR/USD Short Term View Ahead of Draghi and Fed Speeches

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ECB’s Draghi is set to speak in the EU Parliament at 14:00 GMT. The market will probably be on the lookout for hints on potential changes to the ECB’s QE strategy implementation as the central bank now looks to “smoothen implementation”, potentially indicative of a change to the current program rules.

Such a dovish lean seems likely to put pressure on Euro-Zone government bond yields and pressure the Euro. On the other hand, if the market sees hints that the ECB might be approaching its limits, the Euro seems likely to find support.

“Fed-speak” is also in focus today, with scheduled remarks by Tarullo and Kaplan. The US Dollar declined following the FOMC rate decision, and it seems the market put more weight on the longer term rates outlook. The Fed lowered their projected rates path but indicated a hike is likely in December.

With that said, December hike probabilities still sit around 54% at the time of writing (according to Fed fund futures), implying that if “Fed-speak” continues to point to December, there is room for US Dollar strength in the short term on rising hike bets.

EUR/USD Technical Levels:

EUR/USD Short Term View Ahead of Draghi and Fed Speeches

Click here for the DailyFX Support & Resistance tool

We use volatility measures as a way to better fit our strategy to market conditions. The EUR/USD is expected to be the least volatile major currency pair and 20-day ATR reading suggest reduced volatility as well.

In turn, this may imply that the longer term range bound conditions might still be more likely.

EUR/USD 30-Min Chart: September 26, 2016

EUR/USD Short Term View Ahead of Draghi and Fed Speeches

(Click to Enlarge)

The EUR/USD bounced off support around 1.1220 and is approaching the key 1.1250 resistance.

Other resistance levels to watch in the short term might be 1.1275 and the 1.13 handle.

Levels of support may be found at 1.1220, 1.1180, 1.1150, 1.1130 and the big 1.11 handle.

EUR/USD Short Term View Ahead of Draghi and Fed Speeches

In the short term, GSI is showing similar momentum patterns continued to the downside more often than not.

The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.

You can learn more about the GSI here.

We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.

--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com

To contact Oded Shimoni, e-mail oshimoni@dailyfx.com

Follow him on Twitter at @OdedShimoni

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

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