EUR/USD inter-markets: under pressure ahead of FOMC

EUR/USD seems to have found some decent support in the 1.1140 area following Friday’s sharp retracement in response to higher-than-expected US inflation figures during last month. Despite today’s attempt of recovery, spot remains under pressure as cautiousness amongst traders is set to gather traction in light of the upcoming FOMC meeting.

The so far positive performance of EUR finds extra support on rising yields in German Bunds, as opposed by their US peers, which are navigating in a ‘sea of red’.

Volatility tracked by VIX has deflated from recent highs, removing some tailwinds from the common currency, while Fed Fund futures prices are extending the march north, trading closer to monthly highs. According to CME Group’s FedWatch tool, the probability of a Fed’s rate hike on Wednesday is at 12% and above 45% for the month of December.

At the moment the pair is flirting with the 2014-2016 resistance line. A break above it will allow a test of the 100- and 20-day sma in the 1.1200/10 band while the resistance line off 2016 top today at 1.1284 remains a strong hurdle. In case of a resumption of the leg lower, the area around 1.1120 emerges as the initial support ahead of 1.1043 (August’s low) and then the mid-1.900s )July’s lows).