EUR/USD Forecast: Sees Noisy pre-FOMC Action

While the market does not anticipate an immediate interest rate hike, the language of the FOMC’s statement is expected to hold significant sway over sentiment.

• The EUR/USD managed to stage yet another rally during Tuesday’s trading session, with the US dollar exhibiting notable volatility.
• As market participants brace for the forthcoming Federal Open Market Committee meeting scheduled for Wednesday, a cautious sentiment has taken hold.
• Many traders are opting to flatten out their short positions in anticipation of the heightened volatility expected during the FOMC’s announcement and subsequent press conference.

While the consensus does not foresee an interest rate hike this week, the focus has shifted to the language and tone of the FOMC’s statement, which could carry more weight than the actual interest rate decision itself. There’s a prevailing belief in the market that the United States will eventually raise interest rates again. However, the current dilemma centers on whether they will maintain their tight monetary stance for an extended duration.

Looking at the technical landscape, the 1.08 level looms just ahead, and it appears to be a formidable resistance zone, especially with the 200-Day Exponential Moving Average (EMA) closely aligned in the vicinity. A successful breach of this level could potentially pave the way for an upward surge. However, the market remains susceptible to bouts of exhaustion, and this could exert downward pressure. The US dollar’s prevailing strength and the gradual uptick in interest rates contribute to this bearish sentiment. It’s imperative to closely monitor the short end of the yield curve, as it’s expected to be a focal point for market action.

In the event of a breakdown below the lows observed during last week’s Thursday candlestick, the path may open up for a test of the 1.06 level, and potentially even a descent toward the 1.05 level. While this scenario remains a distinct possibility, exercising patience and discretion is crucial as the market’s trajectory unfolds. Considering this outlook, there is potential for this market to be viewed as a shorting opportunity. However, due to the anticipated turbulence emanating from Washington D.C. during Wednesday’s session, it may be prudent to wait until the end of the day before committing substantial capital to the trade.

In conclusion, the euro’s recent rally amidst US dollar volatility sets the stage for an eventful week with the FOMC meeting taking center stage. While the market does not anticipate an immediate interest rate hike, the language of the FOMC’s statement is expected to hold significant sway over sentiment. Technical resistance at 1.08, combined with concerns of exhaustion, suggests a cautious approach. A breakdown could lead to testing lower support levels, emphasizing the importance of prudent trading strategies in the face of potential market turbulence.

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