EUR/USD nestling into a range - post FOMC volatility expected
Going into the FOMC meeting tonight, the EUR/USD rate looks to be nestling into a tight range in and around the 1.1200 level, where we note some Eur 5bln of expiries today at 1.1190-1.1210. As such, we do not expect too much movement, with traders sitting out today's European session until the Fed announcement later this evening with expectations of a dovish tilt. The degree of USD movement will depend on how far the Fed is prepared to signal to ease in the months ahead. Odds for a rate cut this time around stand at around 30% and this would almost certainly hit the USD instantly, though again, certain levels should cap any excessive weakness.
Key levels in EUR/USD stand out at 1.1345-50 where the spot rate last topped out. It is hard to see any material strengthening (or USD weakening) beyond here, and we would expect sellers to come back in from 1.1400-1.1450, but tonight's event is a big one with USD longs seemingly counting on Fed chair Powell to show some restraint. This is hard with the US president providing constant criticism, and the stock markets are also likely to react badly if there is little prospect of easing ahead.
On the downside, 1.1100-05 is clearly the area to watch out for, though once again, we expect any breach to be limited. 1.1050-1.1100 is a strong support area, so this should cushion any major resurgence in the USD should the Fed stick to their current stance.
Earlier this morning, the EU current account came in at Eur 20.9bln for April, with the non seasonally adjusted figure at Eur 19.2bln, which was some way better than expected. There was little response if any, but after yesterday's dovish comments from ECB head Draghi, we could see the EUR soften up in the crosses, so EUR/USD is effectively down to US/USD factors for the most part.