EUR/USD retreats after weak German data; FOMC decision ahead

Written by: Crispus Nyaga
January 27, 2021
  • The EUR/USD pair retreated today after weak France and German consumer confidence data.
  • It also reacted to a worrying statement about the recovery fund by the French finance minister.
  • It will next move because of the FOMC interest rate decision.

The EUR/USD pulled-back today after more weak economic data from Europe and the anticipation of the FOMC interest rate decision. 

EUR/USD
EUR/USD price action

Weak European data

On Monday, data by the Ifo Institute showed that the business climate in Germany deteriorated in January as the second wave of the virus continued to spread. The business climate fell to 90.1 while the current assessment declined to 89.2.

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Today, further data showed the consumers are also pessimistic about the economy. The German consumer climate data by GfK declined to -15.6 from the previous 7.9. This was the lowest reading since May last year. It was also below the estimated 7.9. The same trend was seen in France, where consumer confidence declined from 95 to 92. 

Also, the EUR/USD declined as forex investors grew more concerned about the EU recovery fund. In a statement earlier today, Bruno Le Maire, the French finance minister, said that the fund was too slow and too complicated. All this raise the possibility of the European Union going through a double-dip recession.

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Fed decision ahead

The EUR/USD is also falling because of the strong US dollar. The dollar index has risen by about 0.30% ahead of the FOMC interest rate decision. 

Economists believe that the bank will not change interest rates and the quantitative easing policies this time. However, they will be looking at hints of what the bank plans to do in the future. As such, the statement by Jerome Powell and the dot plot chart will be the key movers. 

If the Fed hints at a rate hike or quantitative easing tapering, the EUR/USD will likely fall. However, if it hints at an expansionary policy, the euro will likely continue rising.

EUR/USD technical outlook

EUR?USD
EUR/USD technical chart

The four-hour chart shows that the EUR/USD pair dropped to the 38.2% Fibonacci retracement level early this year. It then bounced back and found a substantial resistance slightly above the 23.6% retracement level. 

Today, the pair moved below the 25-day and 15-day exponential moving averages. Similarly, the two lines of the MACD have crossed over and moved below the neutral line. Therefore, the downward trend will likely continue falling as bears target the next support at 1.2053. However, because of the FOMC, the alternative scenario is where the pair bounces back.