EUR/USD Forecast: Well-positioned ahead of the Fed, more gains to come?

EUR/USD is trading just above 1.1200, off the highs but not too far. The market mood remains relatively upbeat amid reports of a positive atmosphere in US-Sino trade talks and on a positive close on Wall Street.

The world's most-popular currency pair rallied on Tuesday amid upbeat euro-zone data and unimpressive US figures. The euro area grew by 0.4% QoQ in the first quarter of the year, beating expectations. Moreover, German HICP inflation jumped to 2.1% YoY. The US Core PCE Price Index disappointed with a deceleration to 1.6%

Trading ranges have become limited due to two factors. First, the May Day holiday across most of Europe and Asia results in thin liquidity. Secondly, markets are awaiting the main event of the week: the Federal Reserve decision.

Markets want to know if the Fed is considering a rate cut or still hopes to raise rates. The answer is critical for the US Dollar.

The Fed is expected to leave its rates unchanged, but officials will comment on the current situation. The US economy is doing well, with robust growth and a healthy job market, but inflation is decelerating. Recent data from China and Europe has been encouraging, so the Fed's comments on global headwinds will be of interest as well. Apart from the statement, Fed Chair Jerome Powell will meet the press. 

See:

• Federal Reserve Preview: Squaring the inflation circle
• Fed Preview: The good, the bad, and the ugly factors that determine the dollar's reaction

Ahead of the Fed, things are unlikely to stay too quiet. The US ADP NFP and the ISM MAnufacturing PMI will provide updates on the US economy and will also serve as hints towards the all-important jobs report on Friday.

See US Manufacturing PMI, ADP Employment: A coin with two heads

All in all, the European morning will likely be dominated by further consolidation while quite a bit of action awaits traders in the European afternoon and evening.

EUR/USD Technical Analysis

EUR/USD is enjoying upside Momentum on the four-hour chart and the Relative Strength Index is pointing higher. The pair also crossed the 50 Simple Moving Average. 

The recent high at 1.1230 is the immediate line to watch on the upside and the pair faces further challenges en route to 1.1265 which capped it in late April. The 100 and 200 SMAs are blocking its way. Higher, 1.1325 was a double top in mid-April and towers above. 

Support awaits at 1.1176 which was the low point in March. It is followed by the initial low of 1.1140 seen in late April before the current 2019 low of 1.1110. Further down, 1.1025 dates back to 2017 and can provide further support. 

More: EUR/USD needs to break above one line to run far higher on Fed Day – Confluence Detector