- EUR/USD shot to the highest level since September 2018 amid broad-based USD weakness.
- The USD remained depressed after the Fed delivered a more dovish message on Wednesday.
- A sustained break through 61.8% Fibo. level is needed to confirm any further positive move.
The US dollar came under some renewed selling pressure on Wednesday and tumbled to more than two-year lows after the Fed delivered a more dovish message. The US central bank kept its benchmark rate unchanged at 0-0.25% – as was widely expected – and pledged to use a full range of tools to support the economy in these challenging times. The Fed reiterated to keep rates near zero until it is confident that the economy has weathered the recent events and is on track to achieve its maximum employment and price stability goals.
The accompanying policy statement indicated that members tied the pace of recovery on the developments surrounding the coronavirus pandemic. In the post-meeting virtual press conference, the Fed Chair Jerome Powell said that there are signs that the continuous increase in COVID-19 cases is weighing on the economic activity. This comes on the back of the impasse over the next round of US fiscal stimulus measures and did little to provide any respite to the USD bulls, pushing the EUR/USD pair to the highest level since September 2018.
As investors looked past the Fed decision, the pair struggled to find acceptance above the 1.1800 mark and witnessed a modest pullback during the Asian session on Thursday. Market participants now look forward to the prelim German GDP and CPI reports for some impetus. The Eurozone's largest economy is anticipated to have contracted by 9% during the three months to June. The US economic docket highlights the release of the Advance Q2 GDP report, which is expected to show that the economy collapsed by 34.1% annualized pace. The data will play a key role in influencing the USD price dynamics and produce some meaningful trading opportunities later during the early North American session.
Short-term technical outlook
From a technical perspective, the pair stalled its recent strong bullish momentum just ahead of a resistance marked by the 61.8% Fibonacci level of the 1.2555-1.0636 downfall. The mentioned hurdle is pegged near the 1.1820 region, which should now act as a key pivotal point for short-term traders. A sustained move beyond has the potential to lift the pair towards an intermediate hurdle near mid-1.1800s before bulls eventually aim to surpass the 1.1900 level and test 1.1945-50 resistance zone.
On the flip side, any meaningful pullback might continue to find some support near the 1.1700 round-figure mark. Subsequent fall below the mentioned level might still be seen as a buying opportunity near mid-1.1600s. That said, some follow-through selling might turn the pair vulnerable to slide further towards the 1.1600 mark. The mentioned level represents the 50% Fibo. level and should now act as a strong base for the pair.
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