EUR/USD Forecast: Bulls might struggle for follow-through beyond 1.1400 handle ahead of FOMC

The EUR/USD pair built on Friday's late rebound from over two-week lows and continued gaining positive traction on Tuesday, shrugging off the disappointing release of German Ifo business climate index for December. Meanwhile, news that Italy's government has reached an accord with the European Union on its controversial budget proposal remained supportive of the positive momentum, though failed to provide any strong boost.

The ongoing US Dollar retracement from 1-1/2 year tops set last Friday turned out to be one of the key factors driving the pair higher. Growing market expectations that the Fed might slow the pace, or even pause, its policy tightening cycle continued prompting dollar long-unwinding trade on Tuesday. Adding to this, the US President Donald Trump's verbal intervention on Fed policy further dented the already weaker sentiment and dragged the greenback to four-week lows.

The pair rallied to the 1.1400 handle, over one-week tops, but started retreating from highs and finally settled nearly 40-pips off daily swing high. The USD continued with its struggled through the Asian session on Wednesday and helped the pair to catch some fresh bids ahead of the impending FOMC policy decision, due to be announced later in the day.

The US central bank is widely expected to raise benchmark interest rates by 25 bps, fourth hike for this year, and hence, the key focus will be on updated economic projections, especially the so-called 'dot-plot'. The Fed's policy guidance for 2019 will play a key role in driving the near-term sentiment surrounding the buck and eventually provide some fresh directional impetus for the major.

From a technical perspective, the pair needs to decisively breakthrough 55-day SMA barrier to increase prospects for any further near-term appreciating move. The mentioned hurdle, currently near the 1.1400 mark, has been capping the pair since early-October and hence, should act as a key trigger for bullish traders. On a sustained move beyond the said handle, the pair is likely to surpass the 1.1430-40 intermediate resistance and aim towards reclaiming the key 1.1500 psychological mark.

On the flip side, the 1.1350-40 region now becomes immediate support to defend, which if broken might turn the pair vulnerable to slide back below the 1.1300 handle and aim towards the 1.1270-65 strong horizontal support, tested last week. A follow-through selling has the potential to continue dragging the pair further towards challenging yearly lows, around the 1.1215 region en-route the 1.1200 round figure mark.