- The Federal Reserve suggested it might pause its aggressive tightening cycle.
- The rate differential gap between the US and Europe is closing.
- The probability that the Fed will start reducing rates in June is currently slightly higher than 10%.
Today’s EUR/USD outlook is slightly bullish. The dollar was weak on Thursday after the Fed suggested it might pause its aggressive tightening cycle. However, the Euro gave up some gains after rising by 0.57% on Wednesday.
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The rate differential gap between the US and Europe is closing as markets price in ECB hike more than the Fed. This has been helping European currencies recently.
Wednesday’s interest rate increase by the Federal Reserve may have been the final in a historic string of increases. It began a new chapter in managing the post-pandemic economic recovery.
As expected, the Fed increased rates to the 5.00%-5.25% range. However, it did so without using language in its policy statement that said it “anticipates” additional rate hikes.
The Fed has steered markets away from the probability of rate cuts this year. However, markets are still pricing them in. The Fed’s probability of reducing rates in June is slightly higher than 10%.
Later in the day, the European Central Bank will deliver its rate decision. Although there is a chance of a larger 50bps increase, market positioning is for a 25bps increase.
Additionally, traders will closely monitor the ECB’s statement and President Christine Lagarde’s press conference for clues about the future course of interest rates. Markets currently believe that the ECB has not yet finished raising rates.
EUR/USD key events today
EUR/USD traders will focus on the ECB monetary policy meeting. After the meeting, they will also pay attention to ECB President Christine Lagarde’s speech.
EUR/USD technical outlook: Bears show some strength at 1.1050 key level
The bias in the 4-hour chart is bullish because the price trades above the 30-SMA and the RSI above 50, all signs that bulls are stronger. However, Bears have also shown some strength by making a large candle. Bulls had broken above the 1.1050 resistance level, but bears came in to reverse the breakout.
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If bulls cannot trade above 1.1050, the price might fall further and break below the 30-SMA. A break below the SMA would mean a shift in sentiment and a retest of the 1.0949 support level.
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