The euro traded positive against the U.S. dollar on Tuesday as markets are expecting that the Fed will maintain the status quo with regard to QE after the recent economic data. On the bigger chart, the EUR/USD is closing April with strong gains from the 1.2743 monthly bottom as it has recovered all of the March losses. April has been the seventh month of gains of the last 10.
As FXstreet.com's analyst Valeria Bednarik wrote, "pretty interesting Tuesday," as the EUR/USD was trading sideways between 1.3065 and 1.3075 in the European session, but suddenly, the pair jumped strong to 1.3185 in the early American session before stalling. "Month end fixing and some short covering gave the pair the first push higher, before disappointing U.S. PMI data and headlines stating an ECB rate cut is not a done deal, fueled the rally," she wrote.
As of this writing, the EUR/USD is pricing quietly at 1.3165, 0.50% positive on Tuesday and trading strongly bullish, according to FXstreet.com's trend index. Indicators such as MACD, CCI and Momentum are pointing north, while the Stochastic is neutral in the 1-day chart.
The situation is similar in the short term. "The EUR/USD hourly chart shows a strongly bullish 20 SMA converging with the Fibonacci retracement around 1.3115/20, offering short-term support, while indicators hold in positive territory," states Bednarik. "In the 4 hours chart, technical readings present a strong upward momentum, reflecting the latest run higher and the fact that the price stands near the daily high. New gains beyond 1.3200 are what it takes to confirm an upward continuation in the pair, with 1.3250/60 area then at sight."
Bank's First day: Fed
Following recent economic data in the U.S. such as the weaker than expected Q1 GDP and today's Chicago PMI data showing contraction, the market is assuming that the Fed could back off from the idea of asset-purchase tapering and the FOMC will maintain the status quo regard to its never-ending QE.
"The idea here is that the FOMC will inevitably downshift its rhetoric into a more firmly dovish stance again," points out the Saxo Capital Markets team. With the FOMC dovish members winning the battle against the bullish in the Fed concilium, "the upside scenario for EURUSD is of course driving things at the moment. One can argue that we should be looking for another significant upwave, basically a C-wave in an A-B-C three-wave correction that takes the pair to perhaps as high as 1.3410 on a full 100% extension, though that lies a bit beyond the 61.8% retracement of the huge sell-off wave from 1.3700+ to 1.2750, which comes in at 1.3340," comments the Saxo team. "That assumes, of course, that we take out the 1.3200 overhead flat-line resistance."
Besides the FOMC meeting, the rest of the U.S. calendar comprises the ADP report, Markit Manufacturing PMI and ISM Manufacturing. The consensus is pessimistic about the releases. A negative reading in the ADP will add pressure to the market, as the NFP will take the scene even earlier than Thursday's ECB meeting.