USD WEAKENS AHEAD OF FED MEETING AND GOVERNMENT SHUTDOWN
The USD weakened slightly in early trading hours as traders focused on the upcoming Fed meeting which will be important for several reasons. Firstly, it will be the final meeting for the year and traders expect a rate hike. Secondly, it comes at a time when volatility has increased as evidenced by the large swings in the market. Thirdly, the Fed seems unclear on the number of hikes that may occur in the coming year. Finally, the meeting comes at a time when the economy is softening. Therefore, traders will want to receive guidance from the Fed. The dollar weakness is also because of the deadlock in Washington as a government shutdown nears.
The euro moved up slightly against major peers ahead of important CPI numbers, which are set to be released today. The numbers are expected to show that CPI rose by an annualized rate of 2.0%, which is in line with October. On a MoM basis, the number is expected to show a contraction of minus 0.2%. This will be lower than October’s rise of 0.2%. The core CPI is expected to remain unchanged at a YoY rate of 1.0%. This data will come as the European Union economy continues to show signs of weakness even as the ECB moves to end the quantitative easing program.
Sterling was relatively unchanged as traders continue to wait for the next moves on Brexit. Last week, Theresa May’s proposals were rubbished by Brussels who said that she came unprepared. This week, traders will also focus on the upcoming Bank of England (BOE) meeting where interest rates are expected to be left unchanged. Traders will also want to know more about the plans of the bank given the current state of Brexit.
After the sharp decline on Friday, the EUR/USD pair rose slightly in today’s early trading. The pair moved to an intraday high of 1.1315, which is below the 50-day and 25-day EMA. The current horizontal movements could be because of traders’ indecision about upcoming data. Today, there is a likelihood that the pair will remain along the channel shown in the chart below.
The GBP/USD pair moved slightly higher today as traders waited for the BOE rate decision. It reached an intraday high of 1.2597. On the four-hour chart, the price is below the 50-day and 25-day EMA. The price is also close to the lowest level this year. The RSI is at the 44 level while the MACD is close to the neutral level. Today, with no major news expected, the pair could continue moving slightly higher.
After falling on Friday, the pair moved slightly higher today. It is now trading at 1237, which is higher than Friday’s low of 1232. This price is also lower than last week’s high of 1250. On the four-hour chart, the pair’s price is below the 25-day and 50-day EMA. The RSI has risen from the oversold level of 30 to the current 40. The pair’s movement will likely depend on the Fed decision. A hawkish decision will likely test the 1220 level while a dovish Fed will likely take the pair to the 1280 level.