EUR/USD declines ahead of FOMC’s meeting

The euro declined against the US dollar as investors awaited the outcome of FOMC’s two-day meeting where policy makers are expected to further scale back Fed’s monthly bond purchases.

EUR/USD touched a daily low at 1.3657, after which consolidation followed at 1.3660, losing 0.1% for the day. Support was likely to be received at January 27th low, 1.3654, while resistance was to be met at January 27th high, 1.3717.

Greenback’s demand continued to be underpinned by expectations for stimulus cuts at the upcoming FOMC’s meeting this week, which is scheduled to be held on January 28-29th.

The Federal Open Market Committee (FOMC) will probably reduce the monthly pace of bond purchases from the current 75 billion USD by increments of 10 billion USD at every policy meeting to exit the program this year, according to the median estimates by experts in a survey by Bloomberg conducted on January 10th.

A report by the US Census Bureau revealed the new home sales in the country declined by 7% to the annualized level of 0.414 million units in December, after November’s downward revised figure of 0.445 million units. Analysts had anticipated that new home sales will reach 0.455 million units.

Data from the same report showed the recovery of the US housing market was pressured by the higher home values and the increasing mortgage rates. The average value of a new home was 270 200 US dollars, which is up 4.6% on year-over-year basis and is the strongest level since April. The worse-than-expected current housing market conditions in the US pressured greenback’s demand.

However, the downbeat data did little to change the overall market expectations for stimulus cuts at the upcoming FOMC’s meeting this week.

Meanwhile, the euro drew support yesterday, after data showed the German business climate increased to the strongest level since mid-2011.

A report by the IFO Institute for Economic research, revealed that its German business climate index climbed to 110.6 in January from 109.5 in the previous month, marking the strongest level since July 2011. According to the median analyst’ forecast the index should have increased to 110.0.

Each one of the two sub-indexes of the IFO business climate index have 50% weight. Both registered advances in January. The index which tracks the economic expectations of the respondents for the next six months advanced to 108.9 in January from 107.4 in the preceding month. Analysts had estimated that the index will rise to 108.0. The current assessment sub-index also increased to 112.4 in January, matching analysts’ projections and higher than December’s reading of 111.6.

The index is published on a monthly basis and is based on a survey among 7 000 German companies in different sectors, from retail to construction and manufacturing.

Elsewhere, AUD/USD touched a daily high at 0.8821 at 09:23 GMT, after which consolidation followed at 0.8812, adding 0.84% for the day. Support was likely to be received at January 27th low, 0.8678, while resistance was to be encountered at January 27th high, 0.8760. On Friday, the pair touched 0.8660, the pair’s weakest since July 19th 2010.