EUR/USD Eyes 1.35 Key Level Ahead Of US ADP, GDP, FOMC

Dollar is soft against most major currencies as markets are awaiting some key events for today, and for the rest of the week. As for today, the US calendar will start with ADP employment report, followed by Q4 GDP and then FOMC rate decision. And, there will be personal income and spending tomorrow, and non-farm payroll and ISM on Friday. Much volatility is anticipated. The greenback is now at a critical junction against Euro as EUR/USD is pressing both a medium term resistance level at 1.3486 as well as a near term channel resistance. We'd remain bullish in EUR/USD as long as 1.3414 minor support holds and an important point to note is that firm break of 1.35 will have larger bullish implications and indicate acceleration in current rally. Nonetheless, dollar is still near term bullish against Yen, Sterling and Canadian and we don't expect reversal in these pairs.

The market is awaiting the FOMC meeting for January. However, policymakers are not expected to make any changes in the monetary policy and QE. Yet, the tone of the statement would remain dovish. Note also that, due to voting seat rotation, four new presidents (Esther George, James Bullard, Charles Evans and Eric Rosengren replacing John Williams, Dennis Lockhart, Jeffrey Lacker and Sandra Pianalto) will be on board this month. We suspect while Esther George and James Bullard might be dissenters to the current Fed stance, little would be done to affect the outcome. The Fed might revise the Statement of Longer-Run Goals and Monetary Policy Strategy released in January last year, clarifying how the near-term guidance for the fed funds rate works with the central bank's longer-term target of 2% inflation and "maximum" employment.

US Q4 GDP growth is expected to slow back to 1.2% annualized rate, comparing to 3.1% in Q3. Price index is also expected to slow to 1.5%, down from 2.7%. ADP employment growth is expected to slow from 215k to a decent 163k in January. Other data to be watched today include Eurozone confidence indicators, UK mortgage approvals and M4, Swiss UBS consumption and KOF.

Dollar index dips sharply yesterday, thanks to rally in EUR/USD but so far it's still bounded in range of 79.00/84.55. Near term bias is mildly on the downside for a test on 79 support level. But then, the current move might just be part of the consolidation pattern from 78.60. While an eventual downside breakout is expected, we'll stay neutral until a break of 79.0 support as choppy sideway trading might just extend further.