EUR/USD Daily Forecast – Euro on Verge of 9-Week High Post Fed

Federal Reserve Cuts and Signals a Pause

The Federal Reserve meeting on Wednesday triggered a volatile reaction in the markets with a sharp dip in EUR/USD followed by a momentum-driven rally.

The Fed delivered a rate cut as expected but there were different views in the statement and press conference. The initially released statement gave little reason to believe that the Fed will change course. The press conference, however, painted a different picture.

In past meetings and other communication, Powell has several times affirmed that policymakers will act to sustain the economy. The bank shifted on this view, signaling a pause in further cuts in the absence of a material change in the economy.

As hawkish as that might sound, Powell delivered a rather dovish message as well, by saying that a significant improvement is required before the US starts seeing higher interest rates.

When the Fed delivered its first rate cut this year, it was communicated as an ‘insurance cut’. Or more aptly put, a pause in the rate hike cycle. Yesterday’s message, put bluntly, was that the rate hike cycle has ended.

Technical Analysis

Between the recent fundamental and technical developments, I expect the dollar will sell on rallies and has some further downside.

In yesterday’s forecast, I talked about having additional technical confirmation that the recent EUR/USD correction has completed. At this stage, the price action certainly confirms it.

I think EUR/USD is a buy on dips at this point, and the level I have my eye on to the downside falls at 1.1129. In the near-term, the pair might face a bit of a hurdle at the 1.1200 handle. Not only because of the psychological properties of the level, but also because the 200-day moving average is in the proximity of it.

Bottom Line

• The dollar faces renewed selling pressure following yesterday’s Fed meeting.
• Downside support resides at 1.1129.
• The 200 DMA creates a near-term hurdle near 1.1200.