EUR/USD floats above 1.0600 ahead of Federal Reserve monetary policy meeting

  • EUR/USD seesaws around a six-month high after posting the biggest daily gains in two weeks.
  • Traders notched down hawkish Federal Reserve bets after United States inflation data, 50 bps rate hike is given.
  • Firmer statistics from Germany, Euro Area tame recession woes and underpin bullish bias for Euro.
  • Fed’s hints for future rate hikes will be crucial for EUR/USD traders.

EUR/USD portrays the typical pre-Fed consolidation as it makes rounds to 1.0630-20 ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting on Wednesday. In doing so, the Euro stays sidelined near the highest levels in six months, backed by dovish hopes from the US Federal Reserve (Fed), as well as due to recently firmer statistics from Euro Area.

EUR/USD bulls cheer hopes of Federal Reserve’s smaller rate hike

EUR/USD rallied the most in a fortnight after the market’s bets for slower rate increases in 2023 soared on the downbeat release of the US inflation data.

US Consumer Price Index (CPI) dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings.

“Fed funds futures prices implied a better-than-even chance that the Fed will follow its expected half-point interest-rate hike this week with a smaller 25-basis-point rate hike in February, ultimately raising rates no higher than the 4.5%-4.75% range in its battle to beat inflation,” said Reuters. The news also added that traders were betting on a second half-point hike in February before the inflation report.

The US inflation data drowned the US Dollar Index (DXY) to a six-month low and allowed Wall Street to close in the positive territory. Further, the US Treasury bond yields also dropped the most in a week to snap a three-day uptrend, which in turn offered additional strength to Euro.

Also read: Fed December Preview: Will US Dollar selloff continue?

Firmer local data also underpin Euro run-up

Other than the less-hawkish Fed bets, the recent improvement in the Euro Area economics also seemed to have favored the EUR/USD prices.

The German ZEW survey data showed that the Economic Sentiment Index rose to -23.3 in December from -36.7 prior and the market expectation of -26.4. Furthermore, the Current Situation Index rose to -61.4 from -64.5 but fell short of the market expectation of -57. It should be noted that the ZEW Economic Sentiment Index for the Eurozone rose to -23.6 from -38.7. 

Risks emanating from China, Russia join pre-Fed, ECB mood to test EUR/USD bulls

The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems.

On the other hand, Russian President Vladimir Putin is openly rejected supplying oil to countries respecting the Euro Area-backed price cap and is at loggerheads with Ukraine for a long, which in turn challenges the risk appetite and the EUR/USD price.

Above all, the cautious mood ahead of the Federal Reserve’s (Fed) verdict, as well as the anxiety ahead of the European Central Bank (ECB) meeting, keeps the EUR/USD on a dicey floor.

While the Fed is almost set for a 50 bps rate hike, the Euro traders will pay more attention to how the US central bank is prepared to retreat from the rate hike cycle during 2023, as well as the economic projections. “Markets are now obviously going into it with a very dovish mindset – that’ll be fine if the Fed are dovish, but that doesn’t align at all well with recent comms, especially with US services inflation still rising, and the labor market so tight, and we may be in for a bumpy ride,” said analysts at ANZ ahead of the FOMC.

Talking about the ECB, the latest comments from the policymakers and firmer Euro Area data, the regional central bank is expected to sound hawkish despite likely unveiling the 50bps rate hike after two consecutive 75 bps increases in the benchmark rates.

Also read: ECB Preview: Five reasons to expect Lagarde to lift the Euro with a hawkish hike

EUR/USD technical analysis

EUR/USD bulls have miles to go before retaking the throne despite rising to the highest levels in six months, as well as posting the biggest daily jump in a fortnight.

The reason could be witnessed by a slew of upside hurdles for the Euro and the overbought conditions of the Relative Strength Index (RSI) line, placed at 14.

Among the major ones, a downward-sloping resistance line from September 2021, close to 1.0690 by the press time, gains the immediate attention of the EUR/USD bulls.

Following that, a horizontal area comprising March’s low and May’s high, near 1.0785-810, will be a tough nut to crack for the EUR/USD buyers.

In a case where EUR/USD manages to remain firmer past 1.0810, the odds of its run-up towards the high marked in March and the yearly top, respectively near 1.1185 and 1.1495, can’t be ruled out.

Alternatively, pullback moves could aim for the mid-November swing high near 1.0480 before highlighting the 38.2% Fibonacci retracement level of the EUR/USD pair’s one-year-long downturn starting from September 2021, close to 1.0430.

It’s worth observing, however, that a confluence of the 200-DMA and a three-week-old support line, near 1.0365 and 1.0350 in that order, appear the key for the EUR/USD bears as a break of which could re-establish the bearish trend.

Overall, Euro remains off the bear’s radar but the way toward convincing bulls is long and bumpy.

EUR/USD: Daily chart

Trend: Limited upside expected

Additional important levels

Today last price 1.0632
Today Daily Change 0.0005
Today Daily Change % 0.05%
Today daily open 1.0627
Daily SMA20 1.0435
Daily SMA50 1.0126
Daily SMA100 1.0073
Daily SMA200 1.035
Previous Daily High 1.0674
Previous Daily Low 1.0528
Previous Weekly High 1.0595
Previous Weekly Low 1.0443
Previous Monthly High 1.0497
Previous Monthly Low 0.973
Daily Fibonacci 38.2% 1.0618
Daily Fibonacci 61.8% 1.0584
Daily Pivot Point S1 1.0546
Daily Pivot Point S2 1.0464
Daily Pivot Point S3 1.04
Daily Pivot Point R1 1.0691
Daily Pivot Point R2 1.0755
Daily Pivot Point R3 1.0836



Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content

Recommended content

Editors’ Picks

AUD/USD stays firm toward 0.6750 after Aussie jobs data

AUD/USD stays firm toward 0.6750 after Aussie jobs data

AUD/USD is holding firm while eyeing 0.6750 in Asian trading on Thursday, The pair draws support from mostly upbeat Australian employment data for June, which fan RAB rate hike bets. Meanwhile, the US Dollar remains depressed amid Fed rate cut bets, capping the pair's downside. 


USD/JPY extends rebound to 156.50 after suspected BoJ intervention-led drop

USD/JPY extends rebound to 156.50 after suspected BoJ intervention-led drop

USD/JPY is back above 156.50, having witnessed a sharp drop amid thin liquidity in the early Asian hours on Thursday. The pair finds support from a modest uptick in the US Dollar alongside the US Treasury bond yields, reversing the suspected BoJ intervention-led sell-off. 


Gold price trades with modest gains, remains close to all-time peak touched on Wednesday

Gold price trades with modest gains, remains close to all-time peak touched on Wednesday

Gold price attracts some dip-buying following the overnight pullback from the record high. Bets that the Fed will begin its rate-cutting cycle in September continue to act as a tailwind. A modest USD uptick, along with the risk-on environment, might cap further intraday gains.

Gold News

Worldcoin price sets for a rally following the breakout of the descending trendline

Worldcoin price sets for a rally following the breakout of the descending trendline

Worldcoin price faces a descending trendline on Thursday; a breakout signals a bullish move. On-chain data shows that WLD's daily active addresses are increasing, signaling greater blockchain usage. 

Read more

ECB preview: Incoming data since June unlikely to shift the policy view

ECB preview: Incoming data since June unlikely to shift the policy view

Since the last ECB meeting five weeks ago in June, only a limited amount of new economic data has become available, and this data is unlikely to have significantly changed the ECB's perspective on the economy and consequently its policy stance.

Read more