Euro Higher Despite Market Worries of More Gradualist Fed

Euro (EUR/USD) Price and Analysis

• EUR/USD holds above 1.08 in a week packed with central bank policy decisions.
• The near-term uptrend is under pressure, but the longer-term one looks safe enough.
• June could now be the month in which both the Fed and ECB loosen credit

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The Euro edged higher against the United States Dollar as a new trading week began in Europe on Monday, with moves likely to remain extremely limited at least until Wednesday’s monetary policy decision from the Federal Reserve.

This is always a showstopper of course, and this month’s call promises plenty of interest even though it’s all but impossible that interest rates will be going anywhere. This is quite some change from the start of this year. March was thought of as very possibly the month in which Chair Jerome Powell and his colleagues would fire the starting gun on an easing cycle by cutting rates at last. However, US inflation has proven sticky and the economy overall more resilient.

Now, while markets continue to price in lower borrowing costs this year, investors will be keen to see if the Fed’s economic projections trim the number of likely reductions from three to two. If they do, the Dollar can expect more support across the board, including against the Euro.

Of course, the Euro is not without a monetary boost of its own at present, with Eurozone rates at record highs and the European Central Bank by its admission ‘in no hurry’ to reduce them.

ECB Policymaker Pablo Hernandez de Cos said in an interview published on Sunday that the bank could be in a position to cut rates in June, which is when the Fed is also thought most likely to start the process.

EUR/USD is holding above the 1.08 mark as the market looks toward Wednesday’s main event. It might be vulnerable, at least in the short term, if the Fed leaves markets with the impression that fewer, more gradual cuts are coming.

EUR/USD Technical Analysis

EUR/USD Chart Compiled Using TradingView

While the Euro remains within a quite well-respected uptrend channel from the lows of mid-February, the channel base is now coming under renewed pressure. It now offers support very close at hand, at 1.08870, but approaches to it aren’t yet bringing out the sellers in force, and Euro bulls seem able to defend it in what may admittedly be a thin market, ahead of the Fed. They’ll need to get the single currency back above 1.09519 if they’re going to make back the sharp falls seen on March 14 and get the pair back up to its recent highs.

Despite some near-term volatility, the Euro remains well within an overall uptrend from last October. Indeed, that won’t be threatened until the 1.074 region, well below the current market.

IG’s own sentiment data finds traders pretty evenly split on the likely near-term fortunes of EUR/USD, with 53% bullish against 47% coming to it from the bearish side.