EUR/USD Forecast: On the up as the ECB may taper down

  • The EUR/USD is moving up above 1.1800, ignoring the hawkish hike by the Fed.
  • The ECB decision is highly anticipated as an announcement about the end of QE may come.
  • The technical picture consists of conflicting signals as the pair awaits the verdict.

The EUR/USD is on the move to the upside, trading at 1.1820 at the time of writing, dismissing the hawkish shifts in the Fed decision. 

Not only did they raise rates for the second time, but also signaled two additional hikes later in the year, an upgrade from the previous guidance in March. Moreover, the FOMC omitted the pledge to maintain an accommodative monetary policy for the first time in many years. To add fuel to the fire, Fed Chair Jerome Powell will hold press conferences after every rate decision starting in January 2019, a communication change that opens the door for an accelerated pace of rate hikes.

The US Dollar initially advanced, but then lost ground. Powell's cautious words on slow wage growth and perhaps fears of new US tariffs on China weighed on the greenback. More: Powell's Power Play: 6 hawkish developments, USD has room to resume gains.

The US publishes its retail sales report and the Control Group is the primary component to watch. The publication is expected to confirm the robust growth rate in the US economy in the second quarter and may set the direction for markets after the inconclusive reaction to the Fed. For the euro, there is another focus though.

See: US Retail Sales Preview: A tie-breaker after the Fed, but not for EUR/USD

The focus now shifts to the other side of the pond, where the European Central Bank will hold a live discussion on the next moves in its bond-buying program. A tapering down of bond-buying is on the cards, but it is unclear if the central bank will announce it now or wait for the next meeting in July. 

The news about a live discussion already sent the common currency higher last week. In addition to the future of QE, Mario Draghi and his colleagues will release new forecasts for inflation and this may also influence the market.

See: ECB Preview: The time is right to set the end-date for asset purchasing

EUR/USD Technical Analysis

EUR USD technical analysis chart

The EUR/USD is now moving up and this positively affects the RSI which is above 50, and more substantially Momentum, which is swinging to a multi-month high. The pair still trades below the uptrend channel it lost earlier in the week and under the 50-day and 200-day Simple Moving Averages.

The battleline of 1.1830 is important after capping the pair late last week. It almost coincides with a low point seen in early May. The 1.1915 level was a low point in January and also support the pair in a recovery attempt in May. The round number of 1.2000 looms above. 

1.1767 was a stepping stone on the way to lower levels. 1.1720 is the weekly low and the 1.1650 was the May 25th trough.

More: EUR/USD eyes 1.1862 as markets eye the ECB – Confluence Detector

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