- The Dec. 4 high of 1.1116 is the level to beat for the EUR bulls.
- The Federal Reserve (Fed) is expected to keep rates unchanged.
- Markets have priced in the rate cut pause.
- Dollar to take a beating if the Fed cites higher inflation as a prerequisite for a rate hike.
EUR/USD is currently lacking a clear directional bias and needs to break above the Dec. 4 high of 1.1116 to confirm a short-term bullish trend.
The spot has established a higher low at 1.1094 and a close above 1.1116 would confirm a higher high.
Fed to keep rates unchanged
The Federal Reserve is widely expected to keep interest rates steady at 1.5-1.75%, officially bringing an end to the 75bp mid-cycle adjustment.
Analysts at TD Securities expect the committee to communicate patience in deciding future policy moves and President Powell to reiterate that a “material reassessment” in the outlook is a precondition to ease further.
The market has already priced in the rate cut pause. The focus, therefore, is on the interest rate dot plot.
Analysts at Goldman Sachs believe there could be a hawkish or dovish surprise. A hawkish surprise would be more committee members forecasting a single rate hike in 2020 or two rate hikes in 2022.
In that case, EUR/USD will likely drop below 1.1040, invalidating the bullish higher low.
Meanwhile, a dovish surprise would be a decline in the median long-run dot from September’s level of 2.5% and/or participants citing higher inflation as a prerequisite for the next rate hike.
A dovish outcome will likely fuel a convincing break above 1.1116. The Fed rate decision is due at 19:00 GMT.
The pair may also take cues from the US Consumer Price Index (Nov) scheduled for release at 13:30 GMT. The European data docket is empty.
Technical levels
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