The EURUSD currency pair has been under bearish pressure following the latest interest rate decision from the Federal Reserve. While the decision to keep rates unchanged aligned with consensus, it was the hawkish tone struck by Jerome Powell that pushed the US dollar to 7-week highs. Leading up to the meeting, the markets were pricing around a 50/50 chance that rate cuts would occur in March, and Jerome Powell pushed back against these expectations.
It is unlikely that the Fed will reach a level of confidence in the sustainable achievement of their inflation targets by March to cut rates, forcing traders to recalibrate their bets. The CME FedWatch Tool now shows a 64.5% probability that interest rates will once again remain unchanged in March, pushing the timeline to May for the first round of easing. However, the currency pair has to navigate multiple other data releases still due this week. Firstly, the Eurozone inflation is expected later today, followed by the Non-Farm Payrolls report on Friday, both pivotal events that could influence the price action of the EURUSD currency pair.
Technical
On the 4H chart, a falling wedge pattern has emerged. The price has fallen below the 25-SMA (green line) and the 50-SMA (blue line), signalling a bearish tilt. However, the Fibonacci midpoint at 1.0797 offers psychological support that could keep the buyers in play for a potential breakout from the wedge pattern.
If the support at this level holds, a pivot could occur toward 1.0822. This resistance will be a test of the strength of the bullish reversal. If the resistance gets cleared, the breakout could be initiated. The first hurdle to the breakout’s momentum is at 1.0849, where the 50-SMA offers further resistance. A retracement could occur at this level, but if the price moves higher, the bullish run could be sustained toward 1.0875.
However, if support at 1.0797 gets broken down sustainably, the downtrend could steepen. Support at 1.0777 and 1.0758 could come under the spotlight as the market could look to these levels to provide buyers for a potential retracement.
Summary
After the hawkish tone struck by Jerome Powell in yesterday’s interest rate decision, the EURUSD currency pair is under bearish pressure. However, with Eurozone inflation and the US NFP report still due, there remains room for directional price action in the closing sessions of the week.
Sources: Koyfin, Tradingview, CME Group
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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