EUR/USD Forecast: A hawkish Fed hold could trigger a leg lower

EUR/USD continues to fluctuate between key technical levels.
The Fed is widely expected to leave the policy rate unchanged at 5.25%-5.5%.
The revised Summary of Economic Projections and Powell's comments could impact the USD's valuation.

Eren Sengezer FXStreet

EUR/USD climbed to a fresh weekly high near 1.0830 in the early American session on Tuesday but lost its bullish momentum. Early Wednesday, the pair fluctuates in a narrow channel at around 1.0800 as investors gear up for the Federal Reserve (Fed) policy announcements.

The data from the US showed that inflation, as measured by the change in the Consumer Price Index (CPI), edged lower to 3.1% on a yearly basis in November as expected. Meanwhile, the Core CPI, which excludes volatile food and energy prices, rose 0.3% on a monthly basis to match the market consensus. Investors refrained from taking large positions after inflation figures and made it difficult for EUR/USD to find direction.

The Fed is expected to leave the policy rate unchanged at 5.25%-5.5% following the last policy meeting of 2023. Since such a decision is already priced in, investors will scrutinize the revised Summary of Projections (SEP), also known as the dot plot, for fresh clues regarding the timing of a possible policy shift in 2024.

Markets see a more than 40% probability that the Fed will reduce the policy rate by 25 basis points as early as March, according to the CME Group FedWatch Tool. In case Fed Chairman Jerome Powell pushes back against this market expectation and repeats that it's still too early to even think about a rate reduction, that could be seen as a hawkish hold and help the USD gather strength against its rivals.

On the other hand, EUR/USD could gather bullish momentum if the dot plot points to at least 100 basis points of rate cuts next year and Powell leaves the door open for a rate cut in the first half of the year by adopting an optimistic tone about the inflation outlook.

EUR/USD Technical Analysis

EUR/USD remains stuck between 1.0750 and 1.0830, where the 100- and 200-day Simple Moving Averages (SMA) are located. The pair needs to move out of that channel to determine its next short-term direction. With a break above 1.0830, EUR/USD could target 1.0860 (100-period SMA on the 4-hour chart) and 1.0900 (psychological level, static level).

On the downside, 1.0700 (psychological level, Fibonacci 61.8% retracement) and 1.0660 (static level) could be set as next bearish targets if 1.0750 support fails.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

AUD/USD keeps the red near 0.6950 after weak Aussie jobs data

AUD/USD holds losses near 0.6950 on disappointing Australian jobs data, extending the previous day's retracement slide from the monthly high and hitting a fresh weekly low during Thursday’s Asian session. Meanwhile, declining US bond yields drag the US Dollar away from the April 2025 high, touched after Wednesday's hot US CPI, helping limit losses for the currency pair.

USD/JPY slides back below 158.00 as USD reverses post-CPI gains

USD/JPY extends the previous day's pullback from a three-week high, attracting follow-through selling and sliding below 158.00 during Thursday's Asian session. Traders remain on high alert amid speculation that authorities will step in to prop up the Japanese Yen. The US Dollar, meanwhile, reverses Wednesday's hot CPI-led gains to April 2025 highs as US bond yields retreat on China bond-buying talk, further pressuring the pair.

Gold: Upside remains capped by $4,200

Gold regains the smile and leaves behind three consecutive days of losses, advancing to the $4,170 region per troy ounce on Thursday. The precious metal’s recovery comes amid the fresh offered stance in the Greenback and declining US Treasury yields while investors remain cautious ahead of the Fed’s Warsh speech on Friday.

Ripple clings to $1.30 support as downside risks intensify

Ripple is stuck in a bearish trend, trading near $1.30 on Thursday. The remittance token’s bearish shift reflects the broader cryptocurrency market, which remains under heavy selling amid concerns about accelerating inflation in the US.

Budget preview: Is Healey impressing the bond market?

There is less than 2 weeks to go before the Chancellor delivers his first budget. Unusually for the UK, the economic and financial backdrop to this budget is upbeat. UK bonds have been rallying, the FTSE 100 is the top performing major stock index this week, and the Pound is also stabilising versus the Dollar.

Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff

Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.