Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0800.
- Add a stop-loss at 1.0900.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0900.
- Add a stop-loss at 1.0800.
The EUR/USD pair was flat ahead of the important Federal Reserve decision. The pair was trading at 1.0860 on Wednesday morning, the important psychological point at 1.0850, a few pips above this week’s low of 1.0835.
Fed decision ahead
The US dollar has strengthened substantially against the euro and other currencies as traders predict the schedule of Fed and ECB rate cuts.
In its meeting this month, the ECB decided to leave interest rates unchanged at a record high of 4.35%. The bank also hinted that the first interest rate cut will happen in May or June if the market is supportive.
There are chances that the ECB will cut in either of the two months since inflation is moving close to its target of 2.0%. Also, there are signs that the European economy is not doing well, with some countries like Germany being in a recession.
The Federal Reserve, on the other hand, may need to delay its rate cuts for a while since inflation in the US remains high. Core inflation is not falling at a fast pace enough as the prices of rent and insurance continues rising.
The economy is also doing modestly well. The closely watched Atlanta FedNow data estimates that the GDP will expand by 2.1% in the first quarter.
Housing numbers published on Tuesday showed that the sector was also doing well. Housing starts rose to 1.52 million while building permits jumped to 1.51 million. These numbers are crucial because of the importance of the sector to the American economy.
The next important event to watch on Wednesday will be the Federal Open Market Committee (FOMC) decision. Economists expect the Fed will leave rates unchanged and pledge to leave them there for a while since inflation is still so high.
EUR/USD technical analysis
The EUR/USD pair retreated as investors anticipated a potential divergence between the Fed and the European Central Bank (ECB). It slipped to a low of 1.0834, its lowest point since March 6th.
The pair has dropped below the lower side of the ascending channel, which connects the lowest swing since February 24th. It has moved below the 50-period Arnaud Legoux Moving Average (ALMA) while the MACD has crossed the neutral point.
Therefore, the outlook for the pair is bearish, with the next reference point to watch being the psychological point at 1.0800.
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