EUR/USD Forecast: Fed limits upside potential, ECB next
- European Central Bank expected to hike interest rates by 25 basis points on Thursday.
- US Dollar gains momentum after the FOMC meeting on the back of a hawkish tone.
- The EUR/USD is technically bullish but lost some of its upward momentum.
The EUR/USD rose again, posting its highest daily close in a month above 1.0800, despite the US Dollar's recovery triggered by the hawkish hold from the FOMC. Attention now turns to the European Central Bank (ECB) meeting and upcoming US data, which could become more relevant given Fed Chair Powell's statement that the July meeting will be a 'live' meeting."
The ECB will have its Governing Council meeting on Thursday. It is expected to hike interest rates by 25 basis points. The key for the Euro will be the language used in the statement and ECB President Lagarde’s comments during the press conference. Probably, she will repeat that they are not done raising rates. If the meeting turns out to be 'dovish', with signals of a potential pause, the Euro could suffer.
The US dollar recovered ground after the Fed meeting, during which the central bank kept interest rates unchanged but signaled that it is not done hiking rates. The hawkish tone weighed on Treasury bonds and boosted the greenback. Fed Chair Jerome Powell stated that the July meeting will be a "live meeting”, keeping more rate hikes on the table. According to their projections, most FOMC members see another 50 basis points of tightening by year-end
During the Asian session, markets will continue to digest the Fed’s decision and will likely be the key driver until the ECB meeting. Also, key economic data from the US is due on Thursday, particularly Retail Sales, Jobless Claims, and the Philly Fed Index.
EUR/USD short-term technical outlook
The EUR/USD remains bullish on the daily chart, supported by the 20-day Simple Moving Average (SMA) and facing a strong hurdle between 1.0860 and the 55-day SMA at 1.0875. If the Euro breaks above, a move toward 1.0900 and beyond seems likely.
The retreat from the new high at 1.0865 could suggest that the EUR/USD may consolidate before the next move. Given recent key events and the upcoming ECB meeting on Thursday, the market could experience increased volatility and false breakouts
On the 4-hour chart, the EUR/USD remains bullish, and technical indicators are skewed to the upside. However, if the retreat extends below 1.0815 ahead of the Asian session, a deeper correction seems likely towards 1.0805 initially. Below the crucial level located at 1.0785 (20-SMA and an uptrend line); a break lower would weaken the Euro, exposing the next support at 1.0740.
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Author
Matías Salord
FXStreet
Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.
