- The euro shows signs of stalling near 1.18 as traders digest the Fed’s expected rate cut and underlying financial stress.
- Choppy, range-bound trading remains the best case unless a clear breakout develops.
The euro initially tried to rally against the US dollar again on Friday, but it looks like it is slowing down a little bit, maybe even struggling. That is not overly surprising, due to the fact that the 1.18 level above has been significant resistance more than once, and of course, the market was range-bound going into the FOMC decision.
While there is no strong belief that the euro is going to melt down from here, it would not be surprising to see a pullback toward the 50-day EMA as traders start to ponder exactly what just happened. Yes, the Federal Reserve cut interest rates by 25 basis points, but that move was expected.
Top Forex Brokers
FOMC Fallout and Dollar Sensitivity
There are cracks in the financial plumbing around the world, and that has had the Federal Reserve buying $40 billion worth of short-term T-bills to help shore up bank reserves. There are signs of stress out there in the market, and if that stress increases, the US dollar will pick up strength.
If the market can break above the 1.1850 level, then the euro can go higher. But at this point in time, the most recent move has not been overly aggressive. It looks more like the market is trying to find resistance and selling pressure again, and Friday may be where that shows up.
If the market were to turn around and break down below the 50-day EMA, then it opens up a move back down toward the 1.15 level. More than anything else, this looks like a scenario where choppy behavior is most likely. One of the easiest calls to make in the forex world is for the euro to be choppy against the US dollar, because that is what this pair does.
If this market does break out to the upside, then attention will need to be paid to the US dollar against multiple other currencies, because that move would likely be driven by the dollar itself rather than euro-specific strength.
Ready to trade our Forex daily forecast? We’ve shortlisted the top forex brokers in the industry for you.