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The euro is trapped in the Fed’s “linguistic cage”
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Hello everyone, today XM Forex will bring you "[XM Forex]: The euro is trapped in the Federal Reserve's "language cage"". Hope this helps you! The original content is as follows:
On Tuesday (December 9), the EURUSD fell back after being blocked at 1.1650, and traded around 1.1635 during the North American session. The short-term rhythm shows a hesitant state of "weak upside and not deep retracement". The market is more willing to xm-forex.compress positions and leverage before key events occur, waiting for directional signals to appear.
Fundamentals: The event window dominates pricing, interest rate spread expectations and risk aversion
The biggest variable this week xm-forex.comes from the Federal Reserve’s interest rate decision on Wednesday. Interest rate futures pricing shows that the market's expectation for this 25 basis point cut is close to 90%, but what really determines the volatility of the euro against the US dollar is not the single point result of "whether to cut interest rates," but the xm-forex.combination of three things: the wording of the policy statement, the path guidance of the interest rate dot plot, and Powell's statement at the press conference on "whether to suspend the subsequent period and for how long." If the post-meeting xm-forex.communication is hawkish, emphasizing that observation is preferred over continued easing in the xm-forex.coming months, the interest rate differential support on the US dollar will become solid again, and the EURUSD will easily encounter selling pressure in the rebound; on the contrary, if the xm-forex.communication is dovish, strengthening the possibility of further easing, the downward shift in the US dollar interest rate curve will provide room for the exchange rate to rise.
Before the resolution, two employment-related data will be used by the market as "advance calibration" tools: private sector employment changes and job vacancy data. In terms of job vacancies, the market expects that there will be about 7.2 million in September and October, basically similar to the 7.22 million in August. If the data deviates significantly, the market will quickly map it into the discussion of "employment resilience and inflation stickiness", thereby changing its bets on the Fed's subsequent pace. The EURUSD may have a sharp upper or lower shadow on the day the data is released.
In the euro zone, the latest sentiment indicators improved marginally, but for the euroThe boost is limited: the investor confidence index rebounded to -6.2 in December, from -7.4 before; the sub-item for current conditions was -16.5, from -17.5 before; the economic expectations sub-item rose to 4.8, from 3.3 before. The direction of the data is bullish, but the level is still weak, which means that the "repair" is not enough to push the euro out of the trend alone. There are also differences on the policy front: some ECB officials have expressed an "acceptable" attitude towards market bets on a possible move to raising interest rates in the next step, but some officials have clearly downplayed the possibility of "raising interest rates in December." For traders, the result of this disagreement is usually: the euro has no shortage of rebound themes in the short term, but it also lacks a decisive and sustainable driver, and ultimately returns to the reality that events on the dollar side have a higher weight.
Technical aspect:
Judging from the daily candle chart, the EURUSD xm-forex.completed a surge and retreat near the previous high of 1.1778, then dropped to 1.1541, and then reversed again and then bottomed out deeper to 1.1468. The recent upward trend has pushed the price from 1.1468 to 1.1681, but it failed to stand firm above 1.1650 and has now fallen back to 1.1635, indicating that the selling pressure above is more like "release in batches" rather than "one-time shipment".
The 1.1615 position is a key watershed between long and short: it is not only the receiving zone for the recent retracement, but also can be regarded as a cost-intensive area for short-term funds. Once it falls repeatedly, the market will easily test back to 1.1570 or even downwards. to the support band of 1.1541; if it can hold and regain 1.1650 upwards, it will form a "retracement confirmation and then attack again", and the target will naturally point to 1.1681 and the 1.1700 horizontal resistance line above. The 1.1700 line is a typical static resistance level. If there is a large-scale effective breakthrough, it is more likely to open up space to the area of 1.1750 and the previous high of 1.1778. On the contrary, if the impact of 1.1700 fails again, it will easily evolve into a false breakthrough and trigger profit taking.
In terms of indicators, the MACD indicator is in the positive range above the zero axis, DIFF is 0.0013, DEA is 0.0003, and the histogram is 0.0019, showing that bull momentum is still spreading, but the "diffusion speed" needs to be observed to see whether it begins to passivate; RSI is 56.2016, which is in the neutral to strong area, neither overbought nor oversold, and is more in line with the characteristics of "consolidation in an upward trend". Taken together, the structure is bullish and the position is sensitive: whether 1.1615 holds or not, determines whether the exchange rate will follow a healthy retracement in the ascending channel, or turn into a larger-level sideways trend or even a second dip.
Outlook:
Bull outlook: If the Fed’s post-meeting xm-forex.communication is not significantly hawkish, and the employment and job vacancy data do not strengthen significantly, the support margin of the US dollar interest rate differential will weaken, and the EURUSD is expected to xm-forex.complete the retracement confirmation above 1.1615 and retest 1.1650, further looking at 1.1681 and 1.1700. If 1.1700 is effectively broken, the exchange rate will be more capable of extending to the 1.1750 or even 1.1778 area.trend conditions.
Short outlook: If the Fed emphasizes the suspension of easing, or the data reinforces the narrative that "the labor market is still tight," U.S. dollar yields are likely to rise again, and the euro against the U.S. dollar may fall below 1.1615 and turn into "support-turned-resistance." Below, focus on the support bands of 1.1570 and 1.1541. In extreme cases, it is not ruled out that it will point to around 1.1500 again; if risk aversion increases simultaneously, the liquidity premium of the U.S. dollar will amplify downward fluctuations. Generally speaking, the short-term is more like a range-bound market driven by events. The directional market often has to wait for key statements to be implemented before switching from "pull back and forth" to "trend following".
The above content is all about "[XM Foreign Exchange]: The Euro is trapped in the "Language Cage" of the Federal Reserve". It was carefully xm-forex.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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