EUR/USD Forecast: Fearful of the Fed after being downed by Draghi

• EUR/USD has been licking its wounds after ECB's Draghi sent it down on Tuesday.
• Tension has been rising ahead of the critical Fed decision later today.
• Wednesday's four-hour chart points to further falls.

The Draghi show has stolen the show from the Fed. EUR/USD has been struggling to recover from the dovish words of European Central Bank President Mario Draghi. The central banker has said that if the outlook does not improve, the ECB will need to take additional measures such as cutting interest rates – sending the euro plunging. 

The Frankfurt-based institution will analyze the inflation prospects in the coming weeks and prepare a plan. Draghi steps down in around four months and has a chance to leave his mark. 

Draghi's dovish words have sent European bond yields lower, stocks higher – and also triggered angry tweets from US President Donald Trump who blamed Draghi for manipulating the currency and wants the US Federal Reserve to fight back. The president reportedly sought to demote Fed Chair Jerome Powell to a governor from his current post – but has received legal advice suggesting it would be complicated. 

The publication of Trump's intention to remove Powell has come on the eve of today's critical rate decision. The world's most powerful central bank is set to leave the interest rate unchanged but may hint of a rate cut later on this year. Markets are pricing in a rate reduction as early as July and at least one more move later this year.

Have markets gone ahead of themselves? In this case, the dollar has room to run higher. However, if the Fed drops the word "patience" from its statement, the greenback could slide. In the previous post-rate-decision press conference, Powell said that the bank is patient on rates – not raising them nor cutting them. However, he has lately said that the Fed will "act as appropriate." 

Recent signs have been mixed – the economy is growing at a robust pace according to the retail sales data – but the jobs report has disappointed, and inflation is not going anywhere fast.

The next moves hinge on any word coming out of Powell's mouth, the FOMC statement, and the dot-plot – the Fed's signal of where interest rates will be in the near future.

See

• FOMC Preview: to be or not to be 'patient.'
• Fed Preview: Proto-Easing
• Fed Preview: Five factors that will rock USD in a critical decision

While the Fed may disappoint markets by not going far enough, they have received a boost from the news that Trump and his Chinese counterpart Xi Jinping will hold an "extended meeting" at the G-20 Summit in Japan at the end of the month. The world's largest economies are set to announce a resumption of trade talks. The US president reported a positive meeting with Xi. 

Looking forward, Draghi will speak again today, but his message is already out, and it is hard to see him having a substantial impact hours before the all-important Fed decision. All eyes are now on Powell.

EUR/USD Technical Analysis

EUR/USD has been consolidating its losses below the 200 Simple Moving Average, which currently stands at 1.1215. The Relative Strength Index is depressed but does not reflect oversold conditions and momentum remains to the downside.

All in all, the bears are in control.

Support awaits at 1.1180, which was the low point on Tuesday. Further down, 1.1145 capped the pair in late May, and 1.1125 provided support around the same time. The 2019 low of 1.1107 is a critical support line. It is followed by 1.1025 and 1.0900.

Looking up, 1.1250 held EUR/USD down earlier this week. It is closely followed by 1.1270 that held it up last week and 1.1290 which capped a recovery attempt around the same time. 1.1310 and 1.1350 are next.