EUR/USD Forecast: Euro eases from four-year highs ahead of the Fed
- EUR/USD pulls back to 1.2000 after hitting long-term highs at 1.2082.
- The USD plunged on Tuesday following Trump's comments praising the dollar's depreciation.
- The Fed will announce its monetary policy decision on Wednesday amid growing concerns about its autonomy
The Euro ticks down on Wednesday, pulling back to the 1.2000 area at the time of writing, after hitting 1.2080 highs on Tuesday, its highest level since June 2021. US President Donald Trump praised the recent depreciation of the US Dollar (USD), which provided fresh impetus to the global USD sell-off.
The pair has rallied more than 3.5% in a week and a half, with the Greenback crushed by a combination of Trump’s erratic trade policies, higher government spending, and the attacks on the Federal Reserve, which put the central bank’s independence into question and eroded the status of the Greenback as a reserve currency.
Apart from that, investors remain wary about a potential US-Japan coordinated intervention to support the Japanese Yen. News of rate checks by the US Federal Reserve (Fed) and the Bank of Japan (BoJ) on Friday acted as the strongest intervention warning so far this year and prompted speculative investors to scale down their USD/JPY long positions.
The focus on Wednesday shifts to the Fed, which is widely expected to leave interest rates unchanged, with Investors’ attention s likely to be on the bank’s autonomy. President Trump’s plans to replace Jerome Powell with a more dovish Chairman, the efforts to oust Governor Lisa Cook and the criminal investigation into the current chair constitute an unprecedented political pressure on the central bank.
Technical Analysis
The EUR/USD found some resistance at the 251.8% Fibonacci extension of the January 16-20 uptrend, a common exhaustion level, although downside attempts remain contained above the 1.1980 so far.
Technical indicators have reached oversold levels. The Moving Average Convergence Divergence (MACD) line keeps trending higher, but the Relative Strength Index (RSI) is well above 70, levels that might cap advances and invite consolidation.
Immediate support is seen at the intraday lows near 1.1980, then at the January 26 high, at 1.1907. On the upside, above Tuesday's high at 1.2082, there is no clear resistance until the 2021 peak, in the 1.2165 area
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected on June 28 at 07:49 GMT to say that the EUR/USD January 26 high is at 1.1907.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
