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EUR/USD: Consolidated below daily pivot and bearish

  • EUR/USD slipped back below the pivot at 1.1488 on Friday, falling from a high of 1.1540 to a low of 1.1451, consolidating between there and 1.1480 in a sideways drift in the main. 
  • EUR/USD has been unable to fully capitalise on the expectations that the Fed is now on hold for the foreseeable future which is now is firmly entrenched in markets.

This week will be a busy schedule for Fed speakers again ahead of the blackout phase before the next rate decision that is on January 30. The FOMC will enter blackout on 18 Jan. 

We have six speakers giving seven speeches. The most important will be Williams (New York Fed) on Friday though. Casting minds back,  Williams gave a dovish reprise to Powell’s Dec press conference two days later; This time around, analysts at TD securities are looking for him to repeat a soothing message of a patient and data dependent Fed. “While his message won’t be new, we still expect a dovish market reaction.”

However, overall, it is difficult to see current guidance changing between now and the Fed’s meeting at the end of the month, especially as the December CPI, confirmed that the Fed can well afford to wait on raising interest rates. Instead what might be more important this week, besides Brexit, is data. The busy data calendar this week has the potential to create volatility and we have US retail sales, industrial production, new home sales, housing starts, factory orders and regional PMI data for January which all offer the potential for additional volatility. 

Meanwhile, in Europe, ECB President Draghi appears at the European Parliament tomorrow:

“ECB speakers last week held to the line that the basic story of expansion remains in place and that the ECB may wait until spring’s next macroeconomic projections to make a new policy assessment. We continue to dispute how long the ECB can hold back from addressing forward guidance on interest rates in this climate. A sharp drop in manufacturing and broader growth momentum is increasingly evident across Europe, which brings the ECB’s forecast of steadily increasing inflation under the spotlight,” analysts at ANZ Bank explained. 

EUR/USD levels

  • Support levels: 1.1425 1.1390 1.1360  
  • Resistance levels: 1.1480 1.1520 1.1555

According to Valeria Bednarik, Chief Analyst at FXStreet, the risk remains to the downside as the EUR/USD pair was rejected from around the 23.6% retracement of the 2018 yearly decline, suggesting the early January advance was just corrective:

“The short-term picture is bearish, as the price remains well below a now flat 20 SMA, while technical indicators hold well into negative ground, the Momentum heading sharply lower, and the RSI with little directional strength currently at 44. The 100 SMA stands at 1.1430, with the 1.1420/30 price zone being a strong static support area. The pair would need to break below it to confirm a downward extension in the upcoming session that can extend down to 1.1360.”

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