Euro Straddles 1.1300 Ahead of ECB and Fed Meetings. Will EUR/USD Break Out?

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EURO STRADDLES 1.1300 AHEAD OF ECB AND FED MEETINGS. WILL EUR/USD BREAK OUT?

The Euro has been trading in a narrowing range against the US Dollar as the market awaits a plethora of central bank meetings this week. Where to for EUR/USD?

EURO, EUR/USD, FEDERAL RESERVE, ECB, TANKAN, USD/JPY, PBOC – TALKING POINTS

• EUR/USD remains trapped in tightening ranges as central banks gear up
• APAC equities move higher, joined by commodities and associated currencies
• All eyes on the Fed and the level of hawkishness. Will EUR/USD make a move?

HOW_TO_TRADE_EURUSD

The Euro has seen volatility collapse as traders ponder the outlook for EUR/USD ahead of a very busy week for markets. It has been caught around the 1.13 handle where there are a number of option-expires this week.

20 central banks are scheduled to meet this week to make decisions on monetary policy. This includes the G-10 big guns of the Fed (USD), Swiss National Bank (CHF), Norges Bank (NOK), Bank of England (GBP), European Central Bank (EUR) and Bank of Japan (JPY), in that order.

Currencies might be relatively calm leading up to these meetings. The decision by the Federal Reserve Bank will have the most attention from markets.

Participants and commentators eagerly await to see what action the Fed will take after strong hawkish rhetoric seen since the last Federal Open Market Committee (FOMC) meeting

Earlier today we saw Japanese data that was mixed, but generally positive for risk assets. The Tankan survey is conducted quarterly by the Bank of Japan to measure business conditions.

The Tankan large manufacturing index was a slight miss at 18 instead of 19 but the Tankan non-manufacturing index came in at 9, beating the forecast of 5.

The most positive news came from Japanese core machine orders for the month of October. It came in at 3.8%, above the 1.8% expected. USD/JPY was little changed.

The PBOC weakened the Yuan today at the fix after it made a 3-year high last week. This came after a meeting on the weekend of the Communists Party’s top officials at the Central Economic Work Conference. They signalled toward pro-growth policies in 2022.

These factors have led to a generally rosy start to the week for risk assets. Commodity markets were mostly higher, with soft commodities the only laggards. Iron ore was up over 6% on the both the Singapore Exchange and the Dalian Commodity Exchange.

APAC equity indices were mainly up on the day, with China’s CSI 300 index leading the way, up over 1.5% at one stage.

Looking ahead, there is very little data due out before the central bank meetings get under way this week.

 

EUR/USD TECHNICAL ANALYSIS

EUR/USD has been range bound for close to a month now, caught between 1.11861 and 1.13830.

This sideways price action has seen the short-term simple moving average (SMA) crossed several times. The 10 and 21-day SMAs remain very close to the price.

However, medium and long-term SMAs remain above the market and maintain a negative gradient. This might suggest that near-term momentum is in a state of flux, but that medium and long-term momentum could see bearishness unfold.

Support may lie at the previous lows of 1.11861 and 1.11682. On the topside, resistance could be at previous highs and pivots points of 1.13830, 1.15245, 1.16694 and 1.16922.

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 13th December 2021