EUR/USD advances sharply, reaching a weekly high at around parity

• EUR/USD advances sharply, above the 0.9980 mark, ahead of the ECB’s decision.
• The US trade deficit narrowed, though it failed to boost the greenback.
• Fed policymakers reiterated the Fed’s commitment to tame inflation while saying that rates will remain in the restrictive territory.

The EUR/USD advanced sharply on Wednesday, spurred by a slightly risk-on impulse in the North American session, with US equities rising while US Treasury bond yields slip from YTD highs as market players focus on the US Federal Reserve rate path.

The EUR/USD opened near the lows of the day, shy of the 0.9900 mark, and tumbled towards the daily low at 0.9880, before rallying, towards parity at 1.0000. nevertheless, the major retreated to current exchange rates. At the time of writing, the EUR/USD is trading at 0.9982, well above its opening price.

US data revealed earlier, particularly the Trade Balance, showed that the US deficit narrowed in July, as the US Department of Commerce reported. The figures revealed that the deficit descended 12.6% to $70.6 Billion, while Exports of goods and services climbed 0.2%.

Meanwhile, a tranche of Fed speakers are grabbing headlines ahead of the blackout period, which will start on September 10. The first one to hit the stand was the Cleveland Fed Loretta Mester, saying that the market needs to focus on the path of interest rates, rather than “one particular meeting,” while adding that the size of the rate hike that she wants, would be decided in the meeting.

Later, Fed Vice Chair Lael Brainard said that the Fed will keep tighter monetary policy conditions “for as long as it takes to get inflation down.” Brainard added that although July’s inflation figures were positive,  the Fed needs to see “several months of low monthly inflation” to be confident that inflation is indeed cooling down.

Meanwhile, the Fed Beige Book reported that some firms see some easing in labor shortages and price pressures.

According to the Fed’s report, “Overall labor market conditions remained tight, although nearly all Districts highlighted some improvement in labor availability.” Regarding price pressures, nine districts reported some degree of moderation.

What to watch

On Thursday, the European Central Bank would reveal its monetary policy decision, with most analysts expecting a 75 bps rate hike. Nevertheless, researchers of 12 major banks, eight of them expect a 75 bps, while the other four, are not clearly decided between a 50 or a 75 bps increase.

Also read: ECB Preview: Forecasts from 12 major banks, even 75 bps is too little to lift the euro

EUR/USD Price Analysis: Technical outlook

The EUR/USD bounced off the week’s lows, below the 0.9900 figure, while the Relative Strength Index (RSI) is aiming towards the 50-midline. EUR/USD traders should be aware that a divergence between price action and the RSI formed. So EUR/USD Wednesday’s price action is a reaction of the previously mentioned.

Therefore, the EUR/USD first resistance would be parity. A break above will expose the 20.day EMA at 1.0039 and 1.0100. On the flip side, the EUR/USD first support would be 0.9900. Once cleared, the next support would be the YTD low at 0.9863m and the 0.9800 mark.