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EUR/USD: In stasis near key descending trendline hurdle, focus on Fed

  • EUR/USD is trading in a sideways manner around the key falling trendline resistance.  
  • The markets seem to have priced in the possibility of the Fed revising rate forecasts lower to a single rate hike in 2019. The dollar, therefore, may rise across the board if the Fed fails to beat market expectations.  

EUR/USD is consolidating near the resistance of the trendline connecting Jan. 31 and Feb. 28 highs pre-Fed and could rise well above 1.14 if the central bank sounds more dovish-than-expected.  

The shared currency jumped to highs near 1.1360 – trendline resistance – in the European session yesterday as the better-than-expected German Zew surveys pushed up the bund yields. The bullish momentum, however, has stalled in the last 12 hours, possibly due to caution ahead of the Fed and reports stating that US and China negotiators stand divided on key trade issues.  

The US central bank is expected to keep rates unchanged today and signal reduced inclination to hike rates by forecasting just one rate hike for this year, as opposed to two rate hikes predicted in December.  

Notably, the markets seem to have positioned for that dovish change in interest rate dot plot. The bearish bets on the EUR have hit the lowest level in 11-months and the two-year US-German bond yield spread has narrowed to levels below 300 basis points for the first time since April 2018. EUR/USD has rallied 170 pips in the last 13 days.  

So, the greenback may pick up a strong bid if the Fed fails to meet market expectations. The EUR. however, may rally to 1.14 and above if the central bank signals a pause in 2019 and willingness to cut rates next year.  

Technical Levels

 

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