EUR/USD Forecast: Euro remains fragile heading into Fed policy announcements
|- EUR/USD holds above 1.0800 in the European morning on Wednesday.
- The Federal Reserve is expected to leave its policy settings unchanged.
- Market positioning suggests that there is room for further USD strength in case of a hawkish Fed surprise.
After fluctuating in a tight channel above 1.0800 on Tuesday, EUR/USD closed the day marginally higher. With the US Dollar (USD) staying resilient against its rivals early Wednesday, however, the pair is finding it difficult to extend its recovery.
Slightly better-than-expected growth figures from the Eurozone area helped the Euro find a foothold on Tuesday. Additionally, European Central Bank (ECB) President Christine Lagarde reiterated that they would need to be further into the disinflationary process before cutting the rates, supporting the currency.
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.20% | 0.02% | -0.32% | -0.17% | -0.48% | -0.61% | -0.21% | |
| EUR | -0.20% | -0.17% | -0.51% | -0.35% | -0.65% | -0.80% | -0.41% | |
| GBP | -0.03% | 0.16% | -0.35% | -0.20% | -0.48% | -0.64% | -0.24% | |
| CAD | 0.32% | 0.50% | 0.34% | 0.16% | -0.14% | -0.28% | 0.11% | |
| AUD | 0.17% | 0.34% | 0.18% | -0.16% | -0.29% | -0.44% | -0.05% | |
| JPY | 0.46% | 0.64% | 0.63% | 0.13% | 0.28% | -0.17% | 0.24% | |
| NZD | 0.61% | 0.81% | 0.63% | 0.28% | 0.45% | 0.13% | 0.40% | |
| CHF | 0.22% | 0.40% | 0.24% | -0.10% | 0.05% | -0.24% | -0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Ahead of the Federal Reserve's (Fed) policy announcements, the cautious market mood doesn't allow EUR/USD to gain traction.
The Fed is widely expected to leave the policy rate unchanged at 5.25%-5.5% after the first meeting of the year. Investors will scrutinize the policy statement and Chairman Jerome Powell's comments to figure out the timing of the policy pivot.
According to CME FedWatch Tool, markets are currently pricing in a 43% probability that the Fed will lower the interest rate by 25 basis points in March. In case Powell confirms that they will wait at least until May before considering a rate reduction, the market positioning suggests that the USD could gather strength. On the other hand, EUR/USD could turn north if Powell leaves the door open to a rate cut at the next meeting.
EUR/USD Technical Analysis
EUR/USD continues to trade below the descending trend line and the Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50, reflecting the near-term bearish bias.
On the downside, 1.0800 (Fibonacci 50% retracement of the latest uptrend) aligns as critical support. If the USD rallies on a hawkish Fed surprise, the pair could continue to push lower toward 1.0740 (static level) and 1.0700 (Fibonacci 61.8% retracement).
First resistance is located at 1.0850 (50-period Simple Moving Average (SMA), descending trend line) before 1.0900 (psychological level, 100-period SMA) and 1.0940 (200-period SMA).
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