EUR/USD Forecast: Next leg higher or a deeper downside correction? Fed, EU leaders hold the keys

Nine days of gains, three days of consolidation – and what's next? The rally has mostly been fueled by the Federal Reserve, which has provided ongoing support o the US economy, boosting stocks and weighing on the safe-haven dollar.

The world's most powerful central bank announced further accommodation on Monday – loosening its conditions for loans in the Main Street program. The move contributed to the S&P erasing its losses for the year and weighed on the greenback.

It came ahead of Wednesday's all-important rate decision, where the Fed will publish new forecasts and probably reiterate its commitment to the economy, potentially helping EUR/USD advance. Jerome Powell, Chairman of the Federal Reserve, will probably be asked about asset valuations, also amid his comments that the bank "crossed red lines." If he tries to cool markets, the dollar may recover. 

Christine Lagarde, President of the European Central Bank, urged European leaders to adopt the EU Commission's large stimulus program. Brussels' program includes grants worth €500 billion of commonly borrowed funds and has been met with skepticism by several rich countries. The ECB did its part – beating estimates by topping up its most recent bond-buying scheme with €600 billion of funds. 

If the "Frugal Four" – Austria, the Netherlands, Denmark, and Sweden – succumb to pressures from larger countries, the common currency has room to rise. If they insist on changes, the euro may struggle. 

Markets continue benefiting from Friday's surprisingly strong Non-Farm Payrolls report for May, which showed an increase of 2.5 million jobs. JOLTs job openings are due out today. 

German and French trade balance figures both fell short of estimates but had little impact on the euro. The revised Gross Domestic Product estimate for the first quarter will likely confirm the plunge of 3.8%. 

Coronavirus statistics continue falling in European countries while the picture in the US is mixed. Figures are dropping in the greater New York area, while it is rising in large states such as California, Texas, and Florida.

Racial tensions remain high on the political agenda in America and have somewhat weighed on President Donald Trump's approval rating. However, investors have returned to focus on fiscal and monetary stimulus for now.

EUR/USD Technical Analysis

Euro/dollar continues trading above the 50, 100, and 200 Simple Moving Averages on the four-hour chart, while momentum remains positive. The Relative Strength Index is below 70, outside overbought conditions. 

All in all, bulls are in the lead. 

Some support awaits at the daily low of 1.1275, followed by 1.12, a round level which also separated ranges last week. Further down, 1.1150 and 1.1075 are eyed. 

Resistance is at the daily high of 1.1315, followed by 1.1360, an initial peak on the way up, and then by 1.1384, 1.1410, and 1.1495.

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