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- EUR/USD struggled to capitalize on the overnight positive move to the 1.0575-1.0580 area.
- Aggressive Fed rate hike bets continued acting as a tailwind for the USD and capped gains.
- Investors eye the US ADP report, ISM PMI for some impetus ahead of the FOMC decision.
The EUR/USD pair gained some positive traction on Tuesday amid modest US dollar weakness, though the intraday uptick lacked bullish conviction and ran out of steam near the 1.0575-1.0580 area. Given that the Fed's anticipated move to hike interest rates this week is already priced in, a positive risk tone undermined the safe-haven buck and extended support to the major. Traders, however, seemed reluctant to place aggressive bets and wait to see if the US central bank is ready to hike rates further to curb soaring inflation, even if the economy weakens. Hence, the market focus will remain glued to the outcome of a two-day FOMC monetary policy meeting.
The Fed is scheduled to announce its decision later during the US session this Wednesday and is widely expected to raise interest rates by 50 bps. This would mark the first supersized rate increase since 2000 and the first back-to-back hike in 16 years. The US central bank could also announce plans to start shrining its near $9 trillion bond portfolio at a likely pace of $95 billion a month. Apart from this, comments by Fed Chair Jerome Powell will be scrutinized for fresh clues about the future pace of policy tightening. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the EUR/USD pair.
Heading into the key event risk, traders might take cues from the final Eurozone PMI prints. Meanwhile, the US economic docket features the release of the ADP report on private-sector employment and ISM Services PMI. That said, any immediate market reaction to the data is more likely to be short-lived and might do little to provide any meaningful impetus to the major.
Technical outlook
From a technical perspective, the recent range-bound price action witnessed over the past one week or so constitutes the formation of a rectangle on short-term charts. Against the backdrop of a sharp decline since late March, this could be categorized as a bearish consolidation phase. That said, it would still be prudent to wait for a convincing break and acceptance below the 1.0500 psychological mark before positioning for any further losses. The subsequent downfall has the potential to drag spot prices towards intermediate support near the 1.0450 area en-route the 1.0400 mark and the 2017 low, around the 1.0340 region.
On the flip side, immediate resistance is pegged just ahead of the 1.0600 round figure, marking the top end of a near one-week-old trading band. Sustained strength beyond would suggest that the pair has formed a near-term bottom and trigger an aggressive short-covering move. The pair might then surpass the 1.0640-1.0650 resistance zone and aim to reclaim the 1.0700 round-figure mark. The recovery momentum could further get extended, though runs the risk of fizzling out near the previous YTD low, around the 1.0760-1.0755 area.
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