EUR/USD Forecast: Will a 25 bps Fed hike weigh on the pair?
- EUR/USD continues to trade within a touching distance of 1.0800.
- Fed is widely expected to raise its policy rate by 25 basis points.
- Dot-plot and Powell's comments on policy outlook will drive USD's valuation.
EUR/USD has kept its footing and climbed toward 1.0800 early Wednesday. The US Federal Reserve's (Fed) policy announcements later in the American session could trigger the next big action in the pair.
The risk-positive market environment didn't allow the US Dollar to find demand on Tuesday and helped EUR/USD gather bullish momentum.
On Wednesday, European Central bank President Christine Lagarde said that they could see a more prolonged cost-push shock coming from wage growth and reiterated that there is no clear evidence that underlying inflation is trending downwards.
Regarding the policy outlook, "we are neither committed to raise further nor finished with hiking rates," Lagarde said. Although her comments were nothing different from what she said in the ECB press conference last week, EUR/USD managed to edge higher.
The Fed is widely expected to raise its policy rate by 25 basis points to the range of 4.75%-5% following its March policy meeting. The revised Summary of Economic Projections (SEP), that will be released alongside the Fed's policy statement, could increase the US Dollar's (USD) volatility. In case some policymakers forecast a rate cut before the end of the year, risk flows could dominate the action and weigh on the USD. On the other hand, a terminal rate projection at or above 5.5% with no rate cuts until sometime next year could provide a boost to US yields and force EUR/USD to turn south.
FOMC Chairman Jerome Powell's comments on the policy outlook in the wake of Silicon Valley Bank collapse will also be watched closely by market participants. If Powell downplays concerns surrounding the state of the banking sector and reiterates that they will remain focused on battling inflation, the USD is likely to gather strength against its rivals and vice versa.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart is about to rise above 70, suggesting that the pair could stage a downward correction in the near term.
On the upside, 1.0800 (psychological level, static level) aligns as initial resistance ahead of 1.0850 (static level from January) and 1.0900 (psychological level).
First support is located at 1.0750 (static level, former resistance) before 1.0700 (psychological level, static level) and 1.0660 (200-period Simple Moving Average (SMA)).
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
