The EUR/USD finished near the 1.10165 mark going into the weekend. The week of trading produced a rather noticeable amount of choppiness as the EUR/USD achieve a one-year high and came within sight of values not seen since the first week of April last year. Financial institutions continue to display a rather intense buying urge, and also quite vivid last week was the ability of the EUR/USD to bounce off of support slightly above the 1.09600 mark.
Traders must brace for the U.S Federal Reserve’s pronouncements this coming Wednesday. It is widely presumed the U.S. central bank will hike the Federal Funds Rate by another 0.25%. If the Fed doesn’t hike this would be a massive surprise, the rate increase has certainly been factored into the EUR/USD already. Betting against a rate hike this Wednesday would be an absurd betting gesture. The real question for financial institutions and traders is what the Federal Reserve’s FOMC Statement will say regarding its June rate outlook.
EUR/USD Bullish Trend Remains Attractive but the Federal Reserve’s Shadow is Large
While the EUR/USD did climb to new highs last week and came within shouting distance momentarily of the 1.11000 level, prices did fall again. This result serves as a cautionary sign for speculators intent on pursuing the bullish trend of the EUR/USD which has been rather attractive during the month of April. However, the sudden downturns in the EUR/USD and its ability to test support last week also highlight the dangers of being blind to the prospect of lower reversals which certainly happen in the currency pair.
While weaker than expected U.S Advance Gross Domestic Product numbers helped fuel speculative buying of the EUR/USD, selling also quickly materialized afterward as inflation numbers from the U.S. continued to remain rather stubborn. While traders have accepted the notion the U.S. Federal Reserve will hike interest rates this week and may believe the U.S. central bank will need to be less aggressive within a six-month time period, this doesn’t mean that the 3rd of May will be the last increase. It is quite possible that a stubborn U.S. Federal Reserve could hike by another quarter of a point on the 14th of June. This concern helped create choppy conditions experienced last week and will likely cause volatility going into Wednesday’s EUR/USD trading and afterward.
EUR/USD will be affected by the Fed but by Jobs Numbers too
- Non-Farm Employment Change Numbers and Average Hourly Earnings statistics will be reported from the U.S on Friday.
- ‘Smart money’ assumes the Federal Reserve knows the coming results of the U.S jobs numbers which will be reported on Friday, so they will listen to the FOMC Statement closely on Wednesday.
- If the Federal Reserve gives an indication it can become more dovish in the next few months, this could spur on speculative buying of the EUR/USD after the Fed’s monetary policy pronouncements on the 3rd of May.
EUR/USD Weekly Outlook:
The speculative price range for EUR/USD is 1.09380 to 1.11040
Choppy and dangerous conditions exist in the EUR/USD for day traders. Risk management is urged early this week. Traders should also consider the fact that many European banks will be closed on Monday because of the May Day holiday, which means trading volumes, will be lower than normal.
However, U.S traders will be active and speculators should monitor all results. Having produced a test of support last week with higher reversals it might be tempting for traders to continue to wager on upside momentum. However, if the Federal Reserve somehow remains quite aggressive regarding its monetary policy outlook this could spur on the selling of the EUR/USD which might be considered having been too optimistic the past few weeks. Risk-taking will be high this week and traders need to be prepared for fast price velocity.
