EUR/USD holds steady above mid-1.0500s, looks to FOMC for fresh directional impetus

The EUR/USD pair oscillates in a narrow band during the Asian session on Wednesday and for now, seems to have stalled the previous day's sharp retracement slide from the 1.0675 region, or a one-week high. Spot prices manage to hold above mid-1.0500s, though the fundamental backdrop warrants some caution before positioning for any meaningful appreciating move.

The official data published by Eurostat on Tuesday showed that the Eurozone Harmonised Index of Consumer Prices (HICP) decelerated sharply from an annual pace of 4.3% to 2.9% in October. This represented the slowest growth in consumer prices since July 2021 and reaffirmed market expectations that the European Central Bank (ECB) will not raise interest rates further. Apart from this, looming recession risks might continue to undermine the shared currency and act as a headwind for the EUR/USD pair.

The US Dollar (USD), on the other hand, takes a breather following the previous day's strong move up as traders now look to the outcome of the highly-anticipated FOMC monetary policy meeting before placing fresh directional bets. The Federal Reserve (Fed) is widely expected to keep interest rates on hold for the second consecutive time, though might keep the door open for another rate increase by the end of this year. Hence, the market focus will remain glued to the accompanying monetary policy statement.

Apart from this, Fed Chair Jerome Powell's remarks at the post-meeting press conference will be scrutinized closely for cues about the future rate-hike path. This, in turn, will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the EUR/USD pair. In the meantime, hawkish Fed expectations remain supportive of elevated US Treasury bond yields and continue to underpin the buck. This might further contribute to capping the upside for the EUR/USD pair and warrants caution for bulls.

Heading into the key central bank event risk, traders will confront the release of the ADP report on private-sector employment, the ISM Manufacturing PMI and JOLTS Job Openings data from the US. This, along with the US bond yields and the broader risk sentiment, will drive demand for the safe-haven USD and produce short-term trading opportunities around the EUR/USD pair later during the early North American session. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside.

Technical levels to watch