EUR/USD poised for a big week with Fed and ECB on tap
The world’s most-widely traded currency pair is poised for a big move heading into dueling central bank meetings next week.
In its meeting on Wednesday, the Federal Reserve is widely expected to accelerate its pace of asset purchases, potentially opening the door for an interest rate hike in the first half of the year if inflationary pressures remain elevated. Meanwhile, on the other side of the Atlantic, the European Central Bank is considering extending its PEPP asset purchase program beyond ECB President Lagarde’s previous deadline of March. In other words, traders may well get a stark reminder of the clear and widening monetary policy divergence between the two central bank behemoths.
Technically speaking, EUR/USD has spent the last month consolidating between 1.1200 and 1.1375. This recent rangebound price action has allowed the pair to correct its oversold condition through time, rather than an outright rally in price, potentially setting the table for a breakdown if we see a more aggressive taper from the FOMC next week. A break below 1.1200 could open the door for a continuation toward the mid-1.10s, where previous resistance from May 2020 and the 78.6% Fibonacci retracement converge next.
Of course, no setup is foolproof, so it’s worth considering the opposite scenario: A continuation of the Fed’s current taper plans or less-dovish-than-expected comments from the ECB could prompt EUR/USD to break above 1.1375 and potentially expose the 50-day EMA near 1.1450.
In its meeting on Wednesday, the Federal Reserve is widely expected to accelerate its pace of asset purchases, potentially opening the door for an interest rate hike in the first half of the year if inflationary pressures remain elevated. Meanwhile, on the other side of the Atlantic, the European Central Bank is considering extending its PEPP asset purchase program beyond ECB President Lagarde’s previous deadline of March. In other words, traders may well get a stark reminder of the clear and widening monetary policy divergence between the two central bank behemoths.
Technically speaking, EUR/USD has spent the last month consolidating between 1.1200 and 1.1375. This recent rangebound price action has allowed the pair to correct its oversold condition through time, rather than an outright rally in price, potentially setting the table for a breakdown if we see a more aggressive taper from the FOMC next week. A break below 1.1200 could open the door for a continuation toward the mid-1.10s, where previous resistance from May 2020 and the 78.6% Fibonacci retracement converge next.
Of course, no setup is foolproof, so it’s worth considering the opposite scenario: A continuation of the Fed’s current taper plans or less-dovish-than-expected comments from the ECB could prompt EUR/USD to break above 1.1375 and potentially expose the 50-day EMA near 1.1450.