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EUR/USD Whipsaws, Settles Higher

December 17, 2020 by

EUR/USD was whipsawing back and forth on Wednesday as traders were preparing for a monetary policy announcement from the Federal Open Market Committee. The currency pair sank before the event but rebounded strongly afterward and ended Wednesday’s trading above the opening level. As for US macroeconomic reports, most of them missed expectations, with the exception of the manufacturing PMI. In particular, retail sales fell much more than was anticipated.

Retail sales dropped by 1.1% in November, far more than analysts had predicted — 0.3%. The previous month’s reading got a negative revision from a gain of 0.3% to a decline of 0.1%. (Event A on the chart.)

Markit manufacturing PMI and Markit services PMI fell in December according to the flash report. Markit manufacturing PMI slipped from 56.7 in November to 56.5 this month. Analysts were expecting a bigger drop to 55.9. Markit services PMI declined from 58.4 to 55.3, below the forecast figure of 55.7. (Event B on the chart.)

Business inventories rose by 0.7% in October, slightly more than analysts had predicted — 0.6%. The previous month’s increase got a revision from 0.7% to 0.8%. (Event C on the chart.)

Crude oil inventories fell by 3.1 million barrels last week, exceeding the average forecast of a 2.8 million barrels decrease. Despite the drop, the stockpiles were 10% above the five-year average for this time of year. The week before, the reserves swelled by 15.2 million barrels. Total motor gasoline inventories increased by 1.0 million barrels and were 4% above the five-year average. (Event D on the chart.)

FOMC decided to leave its monetary policy unchanged, including the target range for the federal funds rate at 0%-0.25%. The projections for GDP and unemployment got a positive revision compared with the September projections, while the outlook for inflation and the projected appropriate policy path remained largely the same. (Event E on the chart.)

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