EUR/USD Forecast: Bulls lead ahead of the Federal Reserve’s announcement

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.1039

Market participants await the United States Federal Reserve monetary policy decision.
The US ADP survey showed the private sector added 296K new job positions in April.
EUR/USD is technically bullish, but the Fed stands in the way.

The EUR/USD recaptured the 1.1000 threshold and hit an intraday high of 1.1046 on Wednesday, entering consolidation mode mid-European morning, as investors await the United States Federal Reserve (Fed) monetary policy decision. The central bank is widely anticipated to hike rates by 25 basis points (bps) and confirm the end of the monetary tightening cycle. However, it seems likely that Chairman Jerome Powell & co will leave the doors open for additional tightening should inflation remain stubbornly high.

Fed’s decision was long ago priced in, which means the market will wait for Powell. And while the chance of a surprise 50 bps hike or an on-hold stance is low, it would result in a wild market reaction. Whatever Chief Powell anticipates for the future of monetary policy will be the catalyst the market is waiting for.

Another relevant factor is the health of the banking system. A third US bank collapsed between the latest Fed meeting and the current one, while regional banks’ shares are under strong selling pressure ahead of the announcement. Ahead of Wall Street’s opening, European indexes stay afloat, trading with modest gains. Their US counterparts, on the other hand, hover around Tuesday’s closing levels.

Data-wise, the Eurozone (EU) published the March Unemployment Rate, which declined to 6.5% from the previous 6.6%, also beating expectations. In the US, the ADP survey on Employment Change posted a whopping 296K, doubling the 148K anticipated by financial markets. Coming up next, S&P Global will publish the final estimate of the Services and Composite PMIs, while the country will release the official ISM Services PMI for April, expected at 51.8 from 51.2 in March.

EUR/USD short-term technical outlook

The EUR/USD pair ticked lower following the release of the ADP survey but quickly trimmed losses and holds steady around 1.1040. From a technical point of view, the daily chart shows that the pair remains above a mildly bullish 20 Simple Moving Average (SMA), which advances above the longer ones and provides dynamic support at around 1.0980. At the same time, the Momentum indicator remains flat at around its 100 level, while the Relative Strength Index (RSI) picked up a bullish pace, aiming north at around 58. Overall, the risk skews to the upside, although a directional movement will depend on the Fed’s announcement.

The 4-hour chart shows that EUR/USD is comfortable above its moving averages, with the 20 SMA lacking direction but the longer ones retaining their upward slopes. Technical indicators, in the meantime, consolidate well above their midlines and at fresh weekly highs, favoring a bullish continuation without confirming it.

Support levels: 1.1000 1.0950 1.0910

Resistance levels: 1.1060 1.1100 1.1160

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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