EUR/USD remains on the downtrend from early today. Euro dropped the previous day amid downbeat European fundamentals, as well as the market’s rush for USD. Bloc’s downbeat data and the rebound in the US inflation expectations and options market data were the main catalysts behind the major currency pair weakness.
Final Manufacturing PMIs in both Germany and the broader Euroland came in a tad below the preliminary figures which dragged the currency down the previous day. Along with that, Chatters over the ECB’s tighter monetary policy weighed on the pair.
Whereas It is anticipated that the inflation pressure present in the bloc will pressurize the ECB’s Lagarde to accept the wait-and-see situation, in turn this makes the pair (EUR/USD) to look on the Fed for any trading clues.
On the other hand, The Fed is expected to announce the tapering of its $120 billion-a-month asset purchase programme in the policy statement at 1800 GMT. But traders keep their focus on clues around what that means for timing of rate rises, after a month of seismic bond market moves in anticipation of hikes as soon as next year.
Deutsche Bank strategist Alan Ruskin said that “Fed Policy is under challenge in ways that cannot be remembered since the early Volcker years.” “Inflation is taking off with an economy that has been pricing itself off zero nominal rates and dramatic negative real rates for the last 18 months.” “If the expected resilience of the real economy to rate hikes is correct, and inflation is similarly stubborn, the market expectations on the terminal funds rate at near 1.75% by the end of 2026 looks way too low.”
Traders will keep the focus on US ADP Employment Change, ISM Services PMI and Factory Orders which will offer a gist on how the fed will be needed to go for controlling the escalating price pressure while also keeping the economy fluid. And the ECB President Lagarde Speech will also be on the focus of the traders.
EUR/USD 4 Hour Chart:
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