Two Scenarios for EUR/USD: Rate Hike vs. No Rate Hike

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Two Scenarios for EUR/USD: Rate Hike vs. No Rate Hike

09:30 AM (EST) Update

The highly talked about September week is finally here! I’m talking about the week when we will finally find out if the Fed is going to hike interest rates or not. What will be the outcome in the two scenarios? Let’s take a look at Ms. USA as she dances against Mr. Euro for this one today.

Economic Points

US Side

US retail sales came in lower than expected Tuesday morning right before the New York session, while we could say that overall U.S. consumer spending appeared to grow at a fairly healthy pace in August. Ms. USA (aka US dollar) rose briefly on the forex dance floor on the news, which only shows how optimistic the forex market participants are! Are they only trying to see the glass half full to push for a rate hike this Thursday?

Right now, there are actually more people expecting a rate hike in September than you’d think. A professor of finance at Wharton told CNBC’s “Squawk Box” in an interview that he believes the first hike in nine years will happen Thursday, though he added that “it’s a close call.”

On the other hand, Goldman Sachs predicts Thursday’s highly anticipated meeting by the Federal Reserve will end up with policymakers delaying a potential rate hike until December. So we obviously are facing two scenarios:

1- Rate hike

2- No rate hike

I’ll get into the technical analysis of both scenarios shortly. But first! Let’s take a look at the Euro zone economic conditions.

Euro Side

Mixed signals from the Euro zone on Tuesday’s London session, as the German ZEW economic sentiment came in way below estimates and lower than August numbers. However the employment change and trade balance came in positive, slapping the ZEW data in the face. Mr. Euro be like:

“What do I do now?!”

He’s been pretty indecisive on the forex dance floor and we can’t blame him.

Looking at Euro zone’s economic data from the last two months however, it seems the situation ain’t so bad and the GDP in particular is picking up a bit. With the Greek noise already behind us, could we see brighter future for the single currency of the European union?

Technical Points

The pair is back to the long term range after the sudden panic rally of August. However, taking a closer look at the daily forex dance floor, you can’t help but notice that the low prices since March have gradually gone up (connect the valleys to create a trend line.) As promised, let’s take a look at two Fed scenarios for the EUR/USD technical analysis:

1- If Janet Yellen and her gang decide to go for the first rate hike in 9 years this Thursday, Ms. USA would have no choice but to fly high, and rightfully so. Investors would be eager to buy into her and to bet on her future strength. Paired up with the indecisive Mr. Euro, the EUR/USD could see a drop targeting 1.08 and 1.05 in extension.

2- If rates remain unchanged, we could see an initial disappointment in the US dollar (pushing the EUR/USD pair higher) but then the pair is likely to go back to its comfort zone and await another market surprise (say, a December rate hike or something.

Supports and Resistance levels

Support Levels Turning Point Resistance Levels
1.08 1.13 1.18
1.05 1.15 1.22

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.