ECB influence may encourage buyers of any post-Fed EUR/USD dips
Sept 18 (Reuters) -EUR/USD traded higher ahead of the Fed's interest rate decision and faces a potential buy-the-rumor, sell-the-fact profit taking scenario after the FOMC begins its widely anticipated easing cycle, but dips may be opportunities for bulls due to the ECB's policy path.
Investors have priced in nearly 250bps of cuts from the Fed for this cycle but have discounted only about 150bps of ECB easing for its cycle.
Doubts about the pace of ECB cuts remain elevated especially after rhetoric from Bundesbank President Joachim Nagel.
Nagel said inflation is currently not where officials want it to be. He added that labor shortages are likely to keep upward pressure on wages.
Diverging policy paths for the Fed and ECB could limit EUR/USD profit-taking pull backs as the current trend of tightening yield and rate differentials may persist.
EUR/USD dip buyers may be lurking near the psychological 1.1000 level and the rising 55-DMA, which currently sits at 1.0976.
Should dip buying dominate and yield differentials tighten EUR/USD may complete the long-term consolidation pattern in place since early 2023.
Completion of that pattern would suggest EUR/USD could rally towards the 1.1650/1.1700 and 1.1900/1.2000 resistance zones.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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