EUR/USD Coiling Ahead of the FOMC Meeting

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EUR/USD Coiling Ahead of the FOMC Meeting

The EUR/USD is bearish. There’s no doubt about that. Many market analysts have it going to parity. I believe this is very likely as well, given that the FOMC does not change its monetary policy direction.

EUR/USD 1H Chart 3/18
eurusd1hchart0318
(click to enlarge)

Today, ahead of the FOMC statement and press conference, the EUR/USD remains in consolidation (It started this week dipping to 1.0460, and then pulling back to 1.0650). The 1H chart shows that this rally put price above the 100- and 50-hour SMAs, and the 1H RSI above 60. This shows loss of some bearish bias and momentum in the near-term. However, there is no bullish momentum (RSI missed 70), and the bias is still bearish with price under the 200-hour SMA.

In fact, if the RSI catches up to price, we might find some sellers again. That is of course if the FOMC does not derail from its current path to raise rates around mid-year. We are approaching the end of Q1, so the market will expect stronger hawkish language from the FOMC as guidance for the rate hike. If the FOMC continues to use cautious language especially with wage growth and inflation, we should not expect the EUR/USD to fall towards 1.0 just yet.

After today’s FOMC statement, if price closes below a support/resistance pivot this week as 1.0550, then, we should anticipate bearish continuation at least to test 1.0460, with risk of breaking towards 1.04 before the week ends.

However, a break above 1.0650 after the FOMC statement would signal further bullish correction.

EUR/USD 4H Chart 3/18
eurusd4hchart03182015
(click to enlarge)

In the bullish scenario, we should limit the outlook to 1.08-1.0820 area, which is where a previous consolidation was held. We should also look for the 4H RSI as it approaches 60. If price stalls around 1.08 and the RSI stalls around 60, be ready for a bearish continuation attempt.

However, if the FOMC has strong language AGAINST raising rates until end of the year or beginning of the next, then we might want to give EUR/USD a bit room back towards the 1.10 handle, and the 4H RSI to be above 70, before considering the bearish attempt.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.