EUR/USD Forecast: Euro looks vulnerable ahead of the Fed, volatility set to rise

EUR/USD Current Price: 1.1284

• Market participants focus their attention on the Federal Reserve.
• FOMC statement at 19:00 to have a significant impact across financial markets.
• EUR/USD awaits the Fed facing bearish pressure, holding above 1.1260/70.

The EUR/USD is falling on Wednesday and is moving without a clear direction ahead of the critical FOMC decision. Stocks are recovering although losing strength as the Fed’s decision approaches. Financial markets, in general, are moving without a clear trend,  with oil rising more than 2% and metals under pressure.

The Dow Jones is up by 0.35%, far from the highs. At the same time, US yields are moving sideways. The outcome of the Fed meeting will likely impact on yields. The 10-year stands at 1.77% and the 30-year at 2.11%. The DXY is rising for the third day in a row but remains below weekly highs.

After the two-day FOMC meeting, the Fed will announce its decision, and then Chair Powell will offer a press conference. Analysts point to a “hawkish hold” with clear signs of a rate hike in March. Market participants will also look for clues about what the central bank considers to do with its balance sheet. Three rate hikes for the current year appear to be priced in. While the situation looks positive for the dollar, the meeting could trigger some “buy the rumor, sell the fact” move, if the Fed delivers as expected or if it is less hawkish than expected. Volatility is expected, and EUR/USD could drop to test 2021 lows or even rebound sharply, erasing January’s losses.

EUR/USD short-term technical outlook

The EUR/SUD chart is biased to the downside. The positive for the euro so far is that it has remained above the 1.1260/70 support area. A break of that level could trigger a bearish acceleration to 1.1220/30, the support that protects 1.1200, which is the last defence to the 2021 low of 1.1183.

The bearish pressure will likely remain intact while EUR/USD trades under 1.1300/05.  A recovery above could alleviate the pressure. The next resistance is seen at 1.1320. Only a firm run above 1.1350 should remove the negative short-term tone.

After the dust settles on Wednesday, the daily close could offer some clues. If it ends above 1.1350, the euro would recover a key horizontal support and also the 20-day moving average, suggesting it could visit the 1.1400 area again. On the contrary, under 1.1260, the negative pressure will prevail, opening the doors to a test of the November low.

Support levels: 1.1260 1.1220 1.1180      

Resistance levels: 1.1310 1.1350 1.1385