- EUR/USD attracts some dip-buying on Wednesday, though lacks bullish conviction.
- Bets that the ECB is done hiking rates act as a headwind for the Euro and cap gains.
- Traders also seem reluctant and now look to the FOMC decision for a fresh impetus.
The EUR/USD pair ticks higher during the Asian session on Wednesday and reverses a part of the previous day's retracement slide from the 1.0715-1.0720 region. Spot prices, however, remain below the 1.0700 round figure and well within the striking distance of a six-month low touched last Friday as traders keenly await the outcome of the highly-anticipated FOMC policy meeting before placing fresh directional bets.
The Federal Reserve (Fed) is scheduled to announce its decision later during the US session and is widely expected to maintain the status quo, leaving the benchmark federal funds rate at the current range of between 5.25% and 5.5%. Investors, however, seem convinced that the US central bank will stick to its hawkish stance and keep the door open for one more 25 bps lift-off by the end of this year in the wake of still-sticky inflation. Moreover, the incoming macro data indicated that the US economy remains resilient, which should allow the Fed to keep interest rates higher for longer.
Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference will be scrutinized closely for fresh cues about the future rate-hike path. This, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh directional impetus to the EUR/USD pair. Heading into the key central bank event risk, the USD bulls seem reluctant to place aggressive bets, which, in turn, is seen acting as a headwind for the major, though the European Central Bank's (ECB) dovish rate decision last week acts as a headwind.
The ECB opted to hike rates for the 10th straight time, by 25 bps, taking its main rate to an all-time high level of 4%. The ECB, however, sent a clear message that the 14-month-long policy tightening cycle could have reached its peak already. Furthermore, the downgrading of CPI and GDP growth forecasts for the coming years – 2024 and 2025 – reaffirmed expectations that further hikes may be off the table for now. The bets were further lifted by the final Eurozone CPI print released on Tuesday, showing that inflation has toned down as compared to July, which should cap the EUR/USD pair.
Technical levels to watch
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