EUR/USD Forecast: A bit overconfident ahead of the Fed?

EUR/USD is trading close to 1.1450, consolidating previous gains and not going anywhere fast. The limited volatility is normal as markets are awaiting the Fed decision. 

The US Federal Reserve is set to leave its policy unchanged in the first meeting of 2019. In recent public appearances, Fed Chair Jerome Powell and his colleagues called for patience on raising interest rates. The focus shifts to the balance sheet reduction. 

The world's most powerful central bank is reportedly contemplating an early end to the policy of reducing the balance sheet and withdrawing funds from markets. More greenbacks floating around imply a weaker dollar. The reports have already weighed on the American currency. 

Is a hint about reducing the balance sheet already priced in? If so, we may see a "buy the rumor, sell the fact" response, and the dollar may rise. 

See:

• Fed Preview: All about the balance sheet - 3 scenarios for the decision and the reaction
• Fed Preview: Balance sheet to the fore

France reported a growth rate of 0.3% QoQ in Q4 2018, above 0.2% expected. However, it came on top of a downward revision to Q3, and the YoY figure of 0.9% is not flattering to the euro zone's second-largest economy. Slow growth is a growing concern for policymakers.

Germany will release inflation figures at 13:00 GMT. This time, German states will not be publishing preliminary data, thus leaving more room for surprises. 

Official trade talks begin in Washington between Chinese Prime Minister Liu He and US Trade Representative Robert Lighthizer. There have been contradicting headlines regarding the chances of reaching an accord between the world's top economies. 

Markets are skeptical about an imminent breakthrough. The US recently pressed charges against Huawei, a prominent Chinese manufacturer of telecommunications equipment and phones. The indictment weighs on sentiment.

In the UK, Parliament instructed the government to renegotiate the controversial Irish Backstop in the Brexit deal and find "alternative arrangements." The move marks a complete turnaround for PM Theresa May that said the current accord is the best deal on offer. The EU reacted immediately by rejecting any changes to the agreement.

While lawmakers also called on the government to avoid a no-deal Brexit, the motion was a non-binding one. The pound dropped on fears of a hard Brexit, but the euro shrugged it off for now.

All in all, the recent upwards move is mostly based on dovish expectations for the Fed. Other factors point to the downside.

EUR/USD Technical Analysis - Bulls in control

EUR/USD is trading above the 50 and 200 Simple Moving Averages, enjoys significant upwards Momentum and is not in oversold territory according to the Relative Strength Index (RSI). All signs point to further gains.

1.1450 was a high point in recent days and serves as immediate resistance. 1.1490 was a peak in the middle of January and is the next target. 1.1540 capped an attempt to rise earlier in the month, and 1.1570 is the 2019 peak.

Some support awaits at 1.1425 which is the day's low so far. More importantly, 1.1410 a low point on Tuesday, held the pair down last week, and also coincides with the 200 SMA. 1.1390 was a swing low early in the week and it is followed by 1.1350 and 1.1340.