EUR/USD Forecast: Bears take their chances as Fed’s decision looms

EUR/USD Current price: 1.0839

• European Central Bank policymakers reiterated fresh data in June may back a rate cut.
• The Federal Reserve will announce its monetary policy decision in the American afternoon.
• EUR/USD is technically bearish, but upcoming direction will depend on the Fed.

The US Dollar trades with a firmer tone ahead of Wall Street’s opening, resulting in EUR/USD hovering near the weekly low at 1.0834. The Euro fell with the European open and following comments from European policymakers, which anyway did not add much to what the market already knows.

European Central Bank (ECB) policymaker Gabriel Makhlouf said he is hopeful rates have reached a top, adding inflation is in the process of coming down. Makhlouf backed a June rate cut last week, so his latest words were no surprise. Additionally, President Christine Lagarde said that by June, policymakers will have enough clues to decide to cut rates, but clarified the future rate path remains uncertain. Finally, ECB’s Chief Economist Philip Lane said that wages are moving in the right direction but also noted that policymakers have to take their time to trim rates.

Data-wise, the Eurozone released January Construction Output, which posted an annualized increase of 0.8%.

Speculative interest now awaits the Federal Reserve (Fed). The central bank will announce its monetary policy decision in the American afternoon and release the Summary of Economic Projections (SEP) or dot plot, which will shed light on policymakers’ economic perspectives and potential rate cuts.

EUR/USD short-term technical outlook

The EUR/USD pair is down for a third consecutive day and the risk of a steep decline increases. The pair peaked for the day at 1.0871, just above a critical Fibonacci level, the 38.2% retracement of the 1.1139/1.0694 slide at 1.0865. In the daily chart, the 20 and 100 Simple Moving Averages (SMAs) hover around the mentioned Fibonacci level with no apparent directional strength, while the 200 SMA is also directionless, providing near-term support around 1.0830. Finally, the Momentum indicator aims higher above its 100 level, but the Relative Strength Index (RSI) indicator heads firmly lower, around 45, in line with another leg south.

For the near term, the 4-hour chart shows sellers retain control. EUR/USD trades below a bearish 20 SMA, which extends its slide below a flat 100 SMA. Furthermore, technical indicators consolidate within negative levels, with no signs of bearish exhaustion. Upcoming direction, however, will depend on the Fed’s announcement and whether three rate cuts are still on the table in 2024.

Support levels: 1.0830 1.0790 1.0745

Resistance levels: 1.0865 1.0920 1.0970