EUR/USD struggles to extend Tuesday's bounce from 50-day SMA, eyes Fed rate decision

EUR/USD trades flat, marking a weak follow-through to Tuesday's bounce from crucial support, as investors await more clues from the Federal Reserve (Fed) on the timing of potential tapering or gradual reversing of monetary stimulus. 

The currency pair is trading largely unchanged on the day near 1.2155 at press time, having defended the 50-day Simple Moving Average (SMA) support and gained 0.28% on Tuesday. 

The dollar's descent has stalled with the futures tied to the S&P 500, signaling a renewed risk aversion with a 0.30% drop. The risk appetite improved on Monday, pushing EUR/USD higher as Biden's administration revealed plans to boost coronavirus vaccines' supply and the International Monetary Fund revised the 2021 global economic growth forecast higher. 

Fed to maintain status quo

The central bank is set to leave the interest rate unchanged near zero and maintain its bond-buying plan at around $120 billion per month. However, Fed's chairman Jerome Powell's comments on potential changes in the central bank's bond-buying program could inject volatility into the markets. 

According to FXStreet's Yohay Elam, any hint of the Fed considering an early scaling back of stimulus to curb speculative bubbles in the financial markets will likely send stocks lower, drawing haven demand for the greenback. 

Several Fed members have recently suggested that the taper could begin as early as late 2021. Similar comments by Powell could push EUR/SD below 1.21, as noted by BK Asset Management's Kathy Lien. 

Ahead of the Fed rate decision, the pair could take cues from the forward-looking German Gfk Consumer Confidence, the US Durable Goods Orders data, and the Italian bond yields. 

Technical levels