EUR/USD Mid-Session Technical Analysis for January 27, 2016

The EUR/USD is trading relatively flat ahead of today’s U.S. Federal Reserve monetary policy announcement that is due to be released at 2:00 p.m. ET. Traders expect the Fed to leave interest rates unchanged, but will be looking at the statement for comments regarding the pace of future interest rate hikes.

The main trend is down according to the daily swing chart. However, momentum has been creeping up since the low at 1.0777 on January 21.

The short-term range is 1.0984 to 1.0777. Its retracement zone is 1.0881 to 1.0905. Earlier in the session, the market tested the lower or 50% level at 1.0881. Since the trend is down, sellers came in to defend it, leading to a slight set-back.

Based on Tuesday’s close at 1.0867 and the early price action, the direction of the market today is likely to be determined by trader reaction to the long-term uptrending angle at 1.0870.

A sustained move under 1.0870 will indicate the presence of sellers. The daily chart is open to the downside with the next target a downtrending angle at 1.0824. Crossing to the weak side of this angle and sustaining the move will put the EUR/USD in a bearish position.

The first target under the angle at 1.0824 is the long-term uptrending angle at 1.0790. This is followed closely by last week’s low at 1.0777. The next angle comes in at 1.0750. This is the last potential support angle before the 1.0710 main bottom.

A sustained move over 1.0870 will signal the presence of buyers. This could lead to a retest of the short-term 50% level at 1.0881.

The 50% level at 1.0881 is a potential trigger point for an acceleration to the upside with the next target a resistance cluster at 1.0904 to 1.0905. Watch for a technical bounce on the first test of this area.

The short-term Fibonacci level at 1.0905 is the trigger point for an acceleration to the upside with the next target angles 1.0944 and 1.0964. The latter is the last potential resistance angle before the 1.0984 main top. A trade through this level will turn the main trend to up.

Watch the price action and read the order flow at 1.0870 today. Trader reaction to this angle will tell us if the bulls or the bears are in control. Look for increased volatility and volume with the release of the Fed statement at 2:00 p.m. ET. If the Fed tones down the number of potential rate hikes then look for the EUR/USD to rally. If the Fed statement is unchanged and they leave open the possibility for 2 or more rate hikes then look for weakness.

The EUR/USD will also be sensitive to the price action in the equity markets because it is a funding currency. This could limit the price action to the downside, for example, if the Fed statement starts a stock market sell-off.