US Dollar Forecast: EUR/USD Bounces Along 50-Day SMA with Fed on Tap

US Dollar Outlook: EUR/USD

EUR/USD appears to have reversed ahead of the January high (1.1046) as it bounces along the 50-Day SMA (1.0848), and the Federal Reserve interest rate decision may keep the exchange rate under pressure should the central bank show a greater willingness to further combat inflation.

US Dollar Forecast: EUR/USD Bounces Along 50-Day SMA with Fed on Tap

EUR/USD trades near the weekly low (1.0835) even though the Federal Open Market Committee (FOMC) is expected to keep US interest rates at 5.25% t0 5.50%, and the exchange rate may track the negative slope in the moving average should it struggle to hold above the indicator.

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However, fresh forecasts from Fed officials may produce headwinds for the Greenback as Chairman Jerome Powell tells Congress that ‘it will likely be appropriate to begin dialing back policy restraint at some point this year,’ and the Summary of Economic Projections (SEP) may curb the recent decline in EUR/USD should the update continue to show a lower trajectory for US interest rates.

US Economic Calendar

FOREX.com Economic Calendar

At the same time, the Fed may show a greater willingness to further combat inflation amid the stickiness in the US Consumer Price Index (CPI), and an upward revision in the interest rate dot-plot may fuel the recent decline in EUR/USD as market participants push out bets for the first Fed rate cut.

With that said, EUR/USD may track the negative slope in the 50-Day SMA (1.0848) should it struggle to hold above the moving average, but the exchange rate may face range bound conditions if it continues to trade above the monthly low (1.0798).

EUR/USD Chart – Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

• EUR/USD appears to have reversed ahead of the January high (1.1046) amid the failed attempt to close above the 1.0940 (50% Fibonacci retracement) to 1.0960 (61.8% Fibonacci retracement) region, and the exchange rate may track negative slope in the 50-Day SMA (1.0848) should it struggle to hold above the moving average.
• Failure to defend the monthly low (1.0798) may push EUR/USD towards the 1.0770 (38.2% Fibonacci retracement) to 1.0790 (61.8% Fibonacci retracement) area, with the next region of interest coming in around the February low (1.0695).
• Nevertheless, EUR/USD may face range bound conditions if it continues to hold above the monthly low (1.0798), with a move above the 1.0860 (50% Fibonacci retracement) to 1.0880 (23.6% Fibonacci extension) area bringing the 1.0940 (50% Fibonacci retracement) to 1.0960 (61.8% Fibonacci retracement) region back on the radar.

Additional Market Outlooks

US Dollar Forecast: AUD/USD Approaches Monthly Low After RBA Meeting

US Dollar Forecast USD/JPY Attempts to Climb Back Above 50-Day SMA

--- Written by David Song, Strategist

Follow on Twitter at @DavidJSong