The EUR/USD pair has been trading in a tight range as traders await the Federal Reserve’s key interest rate decision on Wednesday. The Fed is expected to keep rates unchanged, but market participants will closely watch for any signals from policymakers that could hint at a future shift towards a rate-cutting cycle. The pair has found support near the 1.1300 level, reflecting market caution ahead of the Fed’s decision.
Despite pressure to lower interest rates, the Fed has remained focused on its dual mandate of promoting full employment and controlling inflation. The Euro, used by 19 European Union countries, is the second most heavily traded currency in the world. The European Central Bank (ECB) manages the Eurozone’s monetary policy, with the primary goal of maintaining price stability.
High or rising interest rates typically strengthen the Euro by attracting global investors seeking higher returns. Various economic indicators significantly impact the Euro’s value, including GDP figures, Manufacturing and Services PMIs, employment reports, and consumer sentiment surveys. Positive economic data generally supports a stronger Euro, as it signals economic health and can prompt the ECB to consider raising interest rates.
Eur/usd market watch ahead of Fed
The Trade Balance is another critical data point, measuring the difference between what the Eurozone earns from exports versus its expenditure on imports. A positive trade balance typically strengthens the Euro as it indicates higher demand for Eurozone goods and services.
The EURUSD pair has been consolidating at a key support zone around the 1.1278 level, where a trendline also provides confluence. This area is likely where buyers will step in, with defined risk just below the trendline, aiming for a potential rally towards the 1.16 handle. On the other hand, sellers will be eyeing a break lower to start targeting the 1.09 handle.
The pair also shows a head-and-shoulders pattern, signaling a potential correction. The Federal Reserve’s upcoming statement will heavily influence the US dollar’s direction, while a possible pause by the ECB could boost the euro, potentially limiting the EUR/USD correction at key support levels. If the market views the Fed’s statement as hawkish, a downward trend for the EUR/USD is likely.
However, if the ECB signals a pause in its rate cut cycle in the coming weeks, the euro could appreciate further, thus limiting the potential for a EUR/USD correction. Traders should watch the developments closely to navigate the potential volatility in the market as both the Federal Reserve and ECB’s forthcoming signals will significantly impact the EUR/USD pair.
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