EUR/USD consolidates losses below 1.1600, options market stay bearish before Fed
- EUR/USD bounces off intraday low to add to the weekly gains.
- Risk reversals drop for three days in the last four.
- Fed is expected to announce $15 billion tapering amid reflation fears.
EUR/USD picks up bids to poke the intraday high near 1.1580 during early Wednesday.
The major currency pair dropped the previous day following the US dollar’s rebound amid the pre-Fed anxiety, as well as due to the downbeat Eurozone data.
Among the bloc’s data were downbeat second readings of the Eurozone and German PMIs for October.
Also adding to the pair’s weakness was a rebound in the US inflation expectations and options market data.
US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, snapped a four-day downtrend to bounce off the lowest levels since October 12 by the end of Tuesday’s North American trading.
On the other hand, one-month risk reversal on EUR/USD, a measure of the spread between call and put prices, dropped for the third day in last four during Tuesday, to -0.012 at the latest while following a 0.000 figure marked in Monday.
It’s worth noting that the equal odds of a Fed move and US stimulus hopes keep EUR/USD traders guessing ahead of the event.
Read: Fed Interest Rate Decision Preview: Inflation, employment and interest rates
Other than the Fed decision, US ADP Employment Change and PMIs for October will also be important for the EUR/USD traders.
Technical analysis
Unless crossing a downward sloping trend line from June, around 1.1700, EUR/USD remains on the bear’s radar.