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1 Nov 2017

EUR/USD: the full load-down ahead of the FOMC, what will be the outcome?

  • EUR/USD stuck in a tight range ahead of FOMC.
  • EUR/USD to continue grinding lower at a slow pace?
  • What to expect from the FOMC today?
  • US data stong keeps a lid on rallies in EUR/USD.

After opening -0.06% at the start of the session in the European handover, EUR/USD is currently, trading at 1.1617, down -0.25% on the day, having posted a daily high at 1.1658 and low at 1.1606. The euro is trading in a tight range within 37 pips ahead of the FOMC.

  • US Dollar keeps the positive tone near 94.70, FOMC eyed

The ADP report arrived at 235K and was a big beat vs the expected 200K vs the prior 110K. However, the United States ISM Manufacturing PMI came in at 58.7 below forecasts (59.5) in October, leaving the dollar in limbo ahead of the Fed today. However, while the headline was not as strong as previous and missed expectations, nonetheless, it remains a very strong report. "All in all it is a very good report that suggests the sector has made an excellent start to 4Q," explained analysts at ING Bank, adding, "this should give the Federal Reserve even greater confidence that it can continue with its “gradual” pace of policy tightening. We still look for a December rate hike followed by at least two more next year, irrespective of who leads the Fed."

  • Today's upbeat data help boost the case for a December Fed rate hike - ING
  • Atlanta Fed: GDPNow model forecast for real GDP growth in Q4 at 4.5%

What to expect from the FOMC today?

For today's FOMC, it is going to be low key without a press conference. There is not going to be a change of rates today, and as for the statement, if the Fed were 100% confident about hiking in December, then they may as well hike today, so it is unlikely that there will be a commitment in the statement to hike in December. There may be some technical changes in terms to the balance sheet having finished their first month of allowing the balance sheet to shrink and the Fed might recognise some of the data improvements as well. 

"We note that this will be Governor Quarles first meeting. The market will wait for December's meeting to try to tease out his dot on the plot.  For the record, assuming no chance of a rate hike today, and making some allowances for year-end behaviour, we estimate that fair value for the December Fed fund futures contract would imply a 1.295% yield.  It has been fairly steady at 1.275%," explained analysts at Brown Brothers Harriman.

EUR/USD to continue grinding lower at a slow pace?

Meanwhile, EUR/USD positioning is biased long but a technical correction is underway. The market is heavily in the money in long positions and bulls might be looking to take profits as the market continues to unwind in this correction. However, it may take a much bigger fall to shake out those who are deeply in the money. EUR/USD long positions are huge, near 23bln vs EUR 12bln of EUR shorts.  speculative repositioning and paring will likely keep the grind lower at a slow pace.  

  • Powell is Trump's Goldilocks pick - ING

EUR/USD levels

EUR/USD technicals are bearish with the price consolidated below 1.1660/70. Monthly technicals are bearish as well and so are the daily sticks with the H&S top now confirmed with price heavy below the daily cloud base at 1.1731.The RSIs are also biased to the downside.

Nov 1, 2017

Atlanta Fed: GDPNow model forecast for real GDP growth in Q4 at 4.5%

"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2017 is 4.5 percent on November 1, up from 2
Read more Previous
Nov 1, 2017

So what's positively priced into the pound? - Scotiabank

Analysts at Scotiabank noted the positiveness in the pound. Key Quotes: "The manufacturing PMI figures surprised to the upside, coming in at 56.3 vs
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