EUR/USD Forecast: Bulls on pause ahead of Fed's announcement

EUR/USD Current Price: 1.0783

• The United States Federal Reserve will announce its monetary policy decision later on Wednesday.
• Optimism persists amid no new banks issues, although caution reigns ahead of Fed.
• EUR/USD maintains its bullish stance and could approach 1.0900 should 1.0745 hold.

EUR/USD keeps advancing on Wednesday, flirting with the 1.0800 level ahead of the main event of the week, the United States Federal Reserve (Fed) monetary policy decision. Financial markets have been in a better mood ever since the week started, as the global banking crisis receded compliments to governmental support. As a result, stock markets recovered some of last week's losses, although caution prevails ahead of the Fed's announcement.

The American central bank is widely anticipated to hike the policy rate by 25 basis points (bps), although there's a slight chance US policymakers decide to go for a 50 bps hike, given stubbornly high inflation and hawkish comments from Chair Jerome Powell's last month. The Fed will also release the Summary of Projections (SEP) with fresh inflation and growth forecasts alongside future rate hikes perspectives.

Investors will likely wait for Powell's words on how the banking crisis and monetary policy cross paths before jumping into a certain mood. The market will probably welcome a modest rate hike and more near-term adjustments, indicating the central bank is still working on controlling inflation while pouring cold water on liquidity issues.

Across the pond, European Central Bank (ECB) President Christine Lagarde repeated that "inflation is still high and uncertainty around its path ahead has increased," adding they are not finished with rate hikes nor committed to raising them further.

EUR/USD short-term technical outlook

The EUR/USD pair trades near a daily high of 1.0799, and technical readings in the daily chart support further gains. The pair continues to develop above all its moving averages, with the 20 Simple Moving Average (SMA) gaining upward traction above the longer ones while below the current level. At the same time, the Momentum indicator advances within positive levels, while the Relative Strength Index (RSI) indicator stabilizes at around 58.

The 4-hour chart shows a firmly bullish 20 SMA head north above the longer ones, currently at 1.0715. Technical indicators, in the meantime, hold near overbought readings without clear directional strength. Sellers are nowhere to be found at the time being but could come back with strength if the pair falls below 1.0745, a Fibonacci support level, the 61.8% retracement of the 2022 slump.

Support levels: 1.0745 1.0685 1.0640  

Resistance levels: 1.0825 1.0860 1.0910

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