EUR/USD: Focus on today's close, vulnerable to hawkish interpretation of Fed policy
|- The EUR/USD pair charted a bearish outside day candle yesterday.
- A close below the previous day's low of 1.1726 would confirm a bearish reversal.
- The pair risks a bearish close on a hawkish interpretation of the Fed policy.
The EUR/USD pair created a bearish outside day candle yesterday and could suffer a negative close today on a hawkish interpretation of the Fed policy.
The US central bank raised rates by 25 basis point (bps) yesterday. More importantly, it removed the word "accommodative" and kept the interest rate dot plot unchanged, triggering speculation that the tightening cycle is nearing an end. As a result, the EUR/USD jumped to a high of 1.1798.
However, the spike was short lived and the pair fell back to 1.1726, as the markets quickly realized that removal of the word accommodative does not necessarily mean the Fed is done with the rate hikes and could push rates above the neutral level if the economy shows signs of overheating. This hawkish interpretation may keep the pair under pressure today.
Further, the greenback could pick up a strong bid if the US Q2 GDP and August durable goods figure, scheduled for release today, paints a positive picture of the US economy. Also, a below-forecast German CPI reading, due for release at 12:00 GMT, could hurt the EUR.
Notably, a short-term bullish-to-bearish trend change would be confirmed if the spot closes below 1.1726 (previous day's low), validating yesterday's bearish outside day candle.
EUR/USD Technical Levels
Resistance: 1.1791 (July 9 high), 1.1815 (Sept. 24 high), 1.1852 (June 14 high)
Support: 1.1716 (10-day moving average), 1.1656 (100-day moving average), 1.1615 (50-day moving average)
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