EUR/USD has been going through corrections amid higher volatility after reaching the support area of 1.1120 ahead of long-awaited policy meeting of the Federal Reserve.

The Federal Open Market Committee is widely expected to cut its interest rate by 25 points despite many signs of strength in the US economy. The global crisis is just around the corner. On Monday, President Donald Trump again targted the central bank appealing for more aggressive monetary easing. In this context, there is a strong likelihood of a rate cut. Fed's policymakers have made clear the nation's labor market looks pretty solid. Some of them have said the Fed may cut rates just once this time. Currently there is no clear consensus from Fed officials about why they need to cut rates in the first place, particularly with the US unemployment rate at near a 50-year low. The American economy is going on as the best-in-class performer among developed nations. US consumer prices rose 1.5% in the 12 months through May, the same rate it has averaged since the Great Recession ended in June 2009. The Fed wants inflation at 2%, and weak price gains have become a defining characteristic of what is already the longest US economic expansion on record. Inflationary pressures were higher in 1995, 1998, and 2007. Additionally, the upcoming rate cut is going to open doors for a further rate cut though the economy does not need it.

Trade talks between the US and China are due to resume today with US trade representative Robert Lighthizer and Treasury secretary Steven Mnuchin travelling to Shanghai. Vice Premier Liu He is going to lead the talks for China. The previous round of the talks collapsed in May and Trump increased tariffs on $200bn of Chinese imports to 25% from 10% and threatened to slap 25% tariffs on a further $300bn worth of products. Additionally, this week the US jobs report for July will steal the spotlight with a consensus forecast for the economy to add 160,000 jobs, fewer than 224,000 in June. The unemployment rate is expected to tick down to 3.6%, while average hourly earnings are forecast to rise 0.2% month-on-month and 3.2% year-on-year.

On the other hand, the eurozone's manufacturing sector continues to struggle. European Central Bank President Mario Draghi commented that the economic outlook is becoming "worse and worse". Thus, analysts expect signs of weaker growth in the euro area. Euro traders will be looking ahead to tomorrow's release of the year-on-year flash German inflation figures for July which are expected to decrease from 1.5% to 1.3%. It seems as though the ECB is in no rush to push interest rates into the negative territory as the officials mull the "nuances" associated with its non-standard measures However, it seems as though the Governing Council will continue to endorse a dovish forward guidance as the Governing Council "stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner." It may be only a matter of time before the ECB implements a negative interest rate policy (NIRP) for the Main Refinance Rate, its flagship benchmark for borrowing costs. President Mario Draghi steps down at the end of October and the upcoming change in leadership may produce headwinds for EUR as the central bank struggles to fulfil its mandate for price stability.

TECHNICAL OVERVIEW:

The price is currently trading just above 1.1120 support area with an impulsive bullish inside bar while also forming a Bullish Continuous Divergence along the way. The price is expected to push higher towards 1.1200-50 resistance area as it remains above the support area with a daily close. The price support of 1.1120 has managed to hold the price earlier. So, this support area is expected to play a vital role for upcoming volatility during the rate cut announcement tomorrow.