EURUSD at critical juncture as Fed and ECB prepare for interest rate decisions

This week is significant for the financial markets as both the Federal Reserve (Fed) and the European Central Bank (ECB) are set to announce their interest rate decisions. Current expectations suggest that rates are likely to remain unchanged. However, the market sentiment is gradually shifting towards anticipating a rate cut as the next step, especially as inflation has been showing signs of decline, though it still hovers above the 2% mark. This situation presents a complex scenario, raising questions about whether Fed Chair Powell or ECB President Lagarde might lean towards a more dovish approach. Any divergence in their views could have a substantial impact on the EURUSD, potentially providing the currency pair with its next significant directional push.

If both leaders present a unified stance, we might see less volatility in the EURUSD, but the movements could be more confined as the year comes to an end. From a technical standpoint, the EURUSD has been trading near the midpoint of the trading range observed over the last six weeks, approximately at 1.0765-1.0766. This level is particularly significant as it lies in close proximity to several key technical levels, including the 100-day moving average just below at 1.0760 and the 100-hour moving average slightly above at 1.0775.

In recent times (the last 9 or days), the EURUSD has shown a downward trend, primarily in response to lower eurozone CPI data, with the selling pressure maintaining control below the 100-hour moving average. For a shift towards a bullish bias, a key initial step would be surpassing the 100-hour moving average. Following this, the currency pair faces a major hurdle in the 1.0825 to 1.08326 range, which includes the 38.2% Fibonacci retracement level from the November 1 range, the 200-day moving average, and the descending 200-hour moving average. So there are two crucial clusters of resistance that need to be overcome to affirm a bullish trend: the first lies between 1.0760 and 1.0775, and the second between 1.0825 and 1.08326.

Conversely, on the downside, a slide below the 100-day moving average and the recent low at 1.07248 would set the stage for targeting the 61.8% Fibonacci retracement at 1.0707. Breaking below this level would then shift the focus towards a support zone that lies between 1.0655 and 1.06747 (see green numbered circles on the chart above). Move below that area and it opens the door for a run toward the November lows.

This article was written by Greg Michalowski at Source