Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0740.
- Add a stop-loss at 1.1000.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.100.
- Add a stop-loss at 1.0740.
The EUR/USD exchange rate retreated after the Federal Reserve delivered its second interest rate decision of the year. It dropped to a low of 1.0890, a few pips below the year-to-date high of 1.0950.
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Federal Reserve interest rate decision
The EUR/USD pair dropped after the Fed delivered a relatively hawkish interest rate decision. As was widely expected, the bank decided to leave interest rates unchanged between 4.25% and 4.50%.
The closely-watched dot plot showed that officials anticipate two 0.25% interest rate cuts this year. Market analysts were expecting the bank to signal at least three rate cuts because of the expected slowdown.
Jerome Powell, the Fed Chair predicted that the US economy would slow this year and that inflation would remain higher for longer. Inflation is expected to jump because of Donald Trump’s tariffs. Companies will likely increase prices to maintain their margins.
Trump has added a universal tariff on Mexican and Canadian goods, disrupting one of the biggest trading bloc internationally.
Slowing economic growth and high inflation is known as stagflation and is the most difficult things to handle. Cutting interest rates to deal with inflation often leads to higher inflation, while rate hikes to slow inflation often aftects the economic growth.
The EUR/USD pair also retreated after Eurostat published encouraging consumer inflation data. These numbers showed that the headline consumer inflation dropped from 2.5% in January to 2.3% in February. The core consumer price index dropped from 2.7% to 2.6%.
Therefore, there is a likelihood that the ECB will maintain a dovish tone in the upcoming meetings.
There will be no major economic numbers from the United States and Europe. The key data to watch will be the US jobless claims, Philadephia Fed manufacturing index, and existing home sales.
EUR/USD technical analysis
The EUR/USD exchange rate peaked at the important resistance point at 1.0950 on Wednesday and then pulled back after the Fed decision. Its highest point was a crucial level because it coincided with the highest swing on November 6.
The pair is still between the 61.8% and 78.60% Fibonacci Retracement levels. Also, the Relative Strength Index (RSI) has drifted downward and moved below the overbought level. The pair is hovering at the top of the trading range of the Murrey Math Lines tool.
Therefore, the pair will likely retreat and retes the major S/R pivot point at 1.0740. A move above the resistance at 1.0950 will invalidate the bullish outlook.
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