September 17, 2021 14:36:07

EUR/USD was all set for a fairly steady few days into next week’s FOMC meeting on Wednesday. A “wait-and-see” mode was expected with softer US data, most notably NFP and CPI, hitting dollar sentiment. Conversely, an uneasy risk environment was helping support USD with safe-haven demand evident.

Having traded around 1.18 for several days, this significant support level was broken yesterday with the EUR falling to levels last seen in late August. The failed test of 1.19 at the start of this month now looks like a false break of the downtrend from the May highs. The 61.8% Fib retracement of the late August-early September rally sits at 1.1758. Support should also be seen in the mid-figure zone where prices were held up towards the end of July.

If we get a soft weekly close, then the downward trajectory since early September should target the August 20 low at 1.1663. Of course, much depends on the Fed meeting on Wednesday. Expectations are turning mildly bullish with a steady message on the rate outlook potentially backed up by a more confident dot plot.

Weekly closes are always important, but the one before a critical Fed meeting could tell us a lot about positioning. Only a breach above 1.1825/50 would point to a reversal of the downtrend. We note that 10-year US bond yields are also breaking higher, potentially above the 200-day SMA to levels last seen in mid-July.