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Home » Forex Technical Analysis » EUR/USD Braces for Recovery Amid Fed’s Hawkish Policy Shift

EUR/USD Braces for Recovery Amid Fed’s Hawkish Policy Shift

  • December 19, 2024
  • 59

The EUR/USD currency pair is experiencing a slight resurgence, trading around 1.0400 on Thursday, following a substantial decline the previous day. This uptick comes after the U.S. dollar strengthened considerably in reaction to the Federal Reserve’s latest policy meeting, which concluded on a hawkish note.

During the late hours of trading on Wednesday, the EUR/USD faced intense bearish sentiment, plunging to its lowest point in nearly a month, dipping below 1.0350. Although it has managed to rebound to the 1.0400 level, the overall technical outlook for the pair remains pessimistic. Prior to this recovery, the Federal Reserve had announced a 25 basis point cut in its policy rate, bringing it to a range of 4.25% – 4.5%. In their communication, the Fed emphasized a cautious approach moving forward, dependent on economic data and risk assessments.

Interestingly, the Fed’s revised Summary of Economic Projections suggested the possibility of further rate cuts amounting to 50 basis points by 2025. Following the meeting, commentary from the Fed Chairman indicated that stronger economic indicators, such as growth and employment rates, might necessitate a slower trajectory for future rate cuts, which ultimately led to increased demand for the U.S. dollar and contributed to the decline of the EUR/USD pair.

Looking ahead, the economic agenda includes the release of weekly Initial Jobless Claims data along with a final revision of third-quarter GDP growth figures from the U.S. This economic data could influence market sentiment and currency dynamics in the coming days.

Meanwhile, U.S. stock futures have shown a modest increase, rising approximately 0.3% in early trading. A significant recovery in U.S. equities could temper the dollar’s strength, potentially enabling the EUR/USD pair to stabilize. However, market participants remain cautious, refraining from making aggressive bets on a sustained recovery in the EURO following the Fed’s assertive stance.

On the technical front, the Relative Strength Index has shown a slight increase, indicating the recent uptick in EUR/USD may be a short-term correction from an oversold position. Support appears to be established at 1.0350, with additional levels falling at 1.0300 and 1.0240. Conversely, should the pair break above 1.0400 and establish this level as a base, it could encounter resistance at 1.0440 and 1.0500, aligned with the 50-period Simple Moving Average.

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