EUR/USD Daily Forecast – Euro Nearing 100 DMA Resistance Ahead of Fed

Fed Forward Guidance to Drive Markets

The Federal Reserve meets today and is widely expected to deliver a rate cut. The market reaction should be determined by guidance on how monetary policy will evolve from here.

For most of the year, the markets have been correctly signaling that the Fed needs to ease policy. However, the central bank has consistently come in less dovish than expected in communication.

The Fed has made it clear that it wants to remain data-dependent and will act as necessary and continue to evaluate incoming data. I don’t think this meeting will be any different. There might be some dissenters or perhaps one or two members would have liked to see the Fed take more aggressive action. But on balance, I think policymakers will deliver a cut and then revert back to their data dependence stance. Similar to prior communications, I think they will reiterate that action will be taken as deemed necessary.

Ahead of the Fed meeting, the ADP will release their latest jobs report and the markets will get their first view of third-quarter GDP growth. The GDP figure, in particular, will be important. Official NFP figures will come out on Friday.

Earlier today, jobs data out of Germany showed a slight increase in the number of people unemployed in October. The jobless rate was unchanged at 5%.

Technical Analysis

EUR/USD has held above an important horizontal level at 1.1072 and is starting to show some upward momentum. However, price action after the Fed meeting will be important.

Considering the upward trend since the start of the month, it is starting to look like the correction which began last week might have ended. I think further confirmation at this stage is important. A break above resistance would offer that.

The immediate resistance at this point comes from the 50-period moving average on a 4-hour chart and the 100-day moving average. Both are in proximity to a horizontal level at 1.1129.

I’d prefer to see a rally above 1.1150 to confirm that EUR/USD has returned to the bullish trend seen for most of the month. At that point, I think it would make sense to buy on dips.

Bottom Line

• EUR/USD is facing a confluence of resistance ahead of the Fed meeting.
• The Fed is widely expected to cut rates.
• Ahead of the Fed meeting, GDP and jobs data will be released. The GDP figure will be the first look at growth in the third quarter, as such, it should accompany volatility.