The Euro and US Dollar (USD) brace for a volatile session as the highly anticipated Federal Open Market Committee (FOMC) meeting concludes later today. The Fed is widely expected to maintain interest rates at their current 23-year high of 5.25%-5.5%. However, the focus lies on the central bank’s updated economic projections and the infamous “dot plot,” which reveals policymakers’ expectations for future rate adjustments.
Recent hawkish data has thrown a wrench into the Fed’s plans. Upward revisions to US inflation and hotter-than-anticipated producer prices suggest taming inflation remains a challenge. This has tempered market expectations for aggressive rate cuts in 2024, with some analysts predicting a downward revision from the previously projected three cuts to just two.
Across the pond, the European Central Bank (ECB) seems to be on a more dovish path. ECB officials, including President Christine Lagarde, have hinted at potential rate cuts later this year as inflation shows signs of peaking. This divergence in monetary policy could strengthen the USD against the Euro.
Technical
The 4-hour chart shows that the EURUSD currently trades at 1.08686, hovering slightly below a critical resistance level (1.08722) marked by the 38.20% Fibonacci retracement. The price sits precariously below all three key moving averages [20-SMA (green line), 50-SMA (blue line), 100-SMA (orange line)], indicating a short-term bearish bias. The Relative Strength Index (RSI) at 41.23 is recovering from oversold territory but remains below 50, suggesting potential for limited upside momentum.
Therefore, short-term trading opportunities could exist towards the 50.00% Fibonacci retracement level (1.08385) should the significant level and SMAs provide significant resistance to the bulls’ attempt to push the price higher. A break below the initial retracement level, with significant volume, could confirm the bearish momentum, likely bringing the 61.80% Fibonacci retracement level (1.08048) and 78.60% Fibonacci retracement level (1.07568) support levels into play.
However, a sustained break above the significant level would likely offer short-term trading opportunities towards the 23.60% Fibonacci retracement level (1.09138) in the coming sessions. A successful break above the 1.09138 level would likely bring the 1.09537 and 1.09812 price levels into play in the short term as the price action moves towards the 1.10 psychological level.
Summary
Market sentiment leans towards cautious optimism for EURUSD. The dovish tilt from the ECB is countered by the Fed’s hawkish stance, creating a tug-of-war effect. The outcome of the FOMC meeting, particularly the dot plot, will be crucial in determining the future direction of the pair. Technically, short-term trading opportunities may arise towards the 50.00% Fibonacci retracement level at 1.08385, but a break below could confirm bearish momentum towards 1.08048 and 1.07568 support levels.
Sources: TradingView, Trading Economics, Federal Reserve, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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