EUR/USD Dec. 18 – Rangebound Ahead of Fed Statement

EUR/USD  is  almost unchanged in Wednesday trading, as  pair continues to trade in the mid-1.37 range. In economic news, German Ifo Business Climate posted another strong reading and matched expectations. In the US, the Federal Reserve wraps up a two-day policy meeting, and the markets are anxiously waiting to see if the Fed tapers QE. As well, the US will release Building Permits, a key event, later in the day.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• EUR/USD  was very  quiet  in the Asian session, consolidating at 1.3772. The pair  is unchanged in the  European session.
• Current range: 1.3710 to 1.3800.

Further levels in both directions:  

• Below: 1.3710, 1.3675, 1.3615, 1.3525, 1.3440, 1.34, 1.3320, 1.3240, 1.3175 and  1.31.
• Above: 1.3800, 1.3832, 1.3940 and 1.4036.
• 1.3710  continues to provide support.  1.3675 is next.
• 1.3800 is providing weak resistance. 1.3870 follows.

EUR/USD Fundamentals

• 10:00 German Ifo Business Climate. Exp. 109.7, Actual  109.5 points.
• All Day – ECOFIN Meetings.
• 13:30 US Building Permits. Exp. 0.99M.
• 13:30 US Housing Starts. Exp. 0.95M.
• 13:30 US Housing Starts (Sep. data).Exp. 0.91M.
• 13:30 US Housing Starts (Oct. data).Exp. 0.92M.
• 15:00 US Flash Services PMI. Exp. 56.4 points.
• 15:30 US Crude Oil Inventories. Exp. -2.4M.
• 19:00 US FOMC Economic Projections.
• 19:00 US FOMC Statement.
• 19:00 US FOMC Federal Funds Rate. Exp. <0.25%.
• 19:30 US FOMC Press Conference.

For more events and lines, see the Euro to dollar forecast.

EUR/USD Sentiment

• Will Fed announce December taper?:  All eyes are on the Federal Reserve, which  wraps up  a two-day policy meeting son Wednesday. Speculation is swirling that the Fed could announce a tapering of QE. Currently, the Fed is purchasing $85 billion in assets every month, and a Fed taper will likely boost the US dollar against the major currencies. Even  if the Fed doesn’t announce a taper, it could provide a broad hint that tapering is imminent, or it could provide a sweetener such as a reduction of the  interest paid on reserves (IOER). Any of these options should result in the dollar gaining ground. However, if the Fed decides not to change current policy, the markets will be disappointed and the dollar could fall.  Whatever happens, we can expect some volatility from EUR/USD following the Fed announcement.
• German  data  shines:  It’s been an  excellent week for German releases.  PMI data looked solid, as the Service and Manufacturing PMIs pointed to expansion. German ZEW Economic Sentiment, a key indicator which is based on a survey of institutional investors and analysts, jumped to 62.0 points in November, up from 54.6 the previous month. This easily beat  the estimate of 55.3. On Wednesday, German Ifo Business Climate looked sharp, coming in at 109.5 points, just shy of the estimate of 109.7 points. This as the index’s best showing since March 2012. Germany is the Eurozone’s largest economy, and if the region is to shake off weak economic growth and high unemployment, it will need the German locomotive to lead the way.
• Mixed PMIs out of Europe: There was plenty of action to start off the new trading week, as the Eurozone released a host of PMI numbers. Eurozone Service and Manufacturing PMIs remained above 50, which is the separator between expansion and contraction. German Flash Manufacturing PMI climbed to 54.2 points, while the Services PMI missed the estimate, but came in at a respectable 54.0 points. French PMIs were weak, with the Manufacturing PMI dropping to 47.1 and the Services PMI coming in at 47.4 points.  France, the region’s number two economy,  continues to struggle, and the country  may be back in a recession.
• Senate expected to pass budget agreement:  A two-year, bipartisan  budget agreement is moving quickly through Congress. The deal was overwhelmingly approved in the House of Representatives last week and  the Senate is   expected to follow suit on Wednesday.  The agreement sets limits on  government spending for two years  and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes  much of the  fiscal uncertainty  we’ve seen in recent months.