- EUR/USD has lost its traction after rebounding to 1.1300 area.
- Violation of 1.1270 could be seen as a bearish sign but EURUSD remains at the mercy of the Fed.
- A dovish Fed surprise could open the door for a convincing rebound.
EUR/USD has turned south after failing to extend its recovery beyond 1.1300 during the European trading hours. With the dollar preserving its strength ahead of the Fed's highly-anticipated policy announcements, the pair has retreated to the 1.1270 support area. Although a drop below this level could be seen as a bearish development, investors might opt to stay on the sidelines while waiting to see how the dollar reacts to the FOMC event.
Fed Preview: Three ways Powell could out-dove markets, dealing a blow to the dollar.
If the Fed suggests that they may start shrinking the balance sheet after the first rate hike, most likely in March, US Treasury bond yields will shoot higher and provide a boost to the greenback. The dollar is likely to benefit from a Fed decision to end QE earlier than planned by ramping up the pace of reduction in monthly asset purchases.
On the flip side, the Fed might voice its concerns over a worsening global economic outlook and communicate a patient stance with regards to tightening steps in the future. Such a tone should trigger a sharp recovery in US stocks and make it difficult for the dollar to find demand.
EUR/USD Technical Analysis
EUR/USD's technical outlook indicates that the bearish bias stays intact in the near term with the pair staying below the descending trend line coming from mid-January. Furthermore, the lack of buyer interest is mirrored by the Relative Strength Index (RSI) on the four-hour chart, which has been staying below 50 since the beginning of the week.
The pair recovered to 1.1300 after the bearish pressure faded away near 1.1270 (static level) on Tuesday, suggesting that this level aligns as first support. If buyers fail to defend that level, 1.1250 and 1.1230 static levels could be tested.
On the upside, resistances could be seen at 1.1300 (psychological level, static level), 1.1330 (200-period SMA) and 1.1350 (100-period SMA).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.