EUR/USD drops to 1.1130 as Euro weakens and ahead of the FOMC statement

• Euro under pressure as German bonds hit fresh record lows.  
• US dollar posts mix results ahead of the FOMC statement.  

The EUR/USD pair dropped below 1.1140 and fell to 1.1128, reaching a 2-day low amid a weaker Euro across the board and ahead of the FOMC statement.  

German bond yields dropped to fresh record lows, to negative 0.44% and weight on the Euro that is among the worst performers on Wednesday. Also, the decline in EUR/GBP adds to the negative tone around the common currency.  

The US Dollar is mixed ahead of the FOMC meeting. The US Dollar Index trades practically flat for the day, holding on top of 98.10. Market participants are awaiting the outcome of the 2-day Fed meeting. A 25bp rate cut is expected. If the Fed delivers, it would be the first one since the global financial crisis.  

“We expect 25bps cut in July’s FOMC meeting, due to subdued inflation expectations, disappointing growth outside of the US and the risk of disorderly Brexit. However, the tentative budget agreement should assuage some of the Fed’s concerns about crosscurrents and potential risks to the U.S. economy. The Fed could moderate its stance on the perception of risks, throwing September’s rate cut into question”, wrote analysts at BBVA. The key driver of price action could be the tone of the statement and the signals about what the Fed would do next.  

Volatility is likely to rise sharply during the announcement and also with Powell’s press conference. Ahead of the meeting, EUR/USD continues to consolidate near 1.1150. Fed’s meeting should challenge that stabilization. The critical support to the downside might be seen around 1.1100/10 while on the upside; if it breaks and holds on top of 1.1160, more gains seem likely.  

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