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26 Jul 2023

EUR/USD rises amid USD weakness following Fed's decision

  • The Fed hiked rates by 25 bps as expected to 5.25-5.50%, its highest in 22 years.
  • All eyes are now on ECB’s decision on Thursday, expected to deliver a 25 bps hike.

The EUR/USD is trading positive after 6 consecutive days of losses, precisely at 1.1090 and 0.37% gains during the session.

As expected, the Federal Reserve (Fed) hiked rates by 25 basis points and is positioned in the 5.25%-5.50% target. However, during the press conference, Chair Powell did not commit to a hike in September as ongoing decisions will depend on incoming data.
Regarding the economic assessment, Powell noted that economic activity and the labour market remain robust but that inflation remains too high.

That said, the DXY index fell to 101.030, showing a decrease of 0.26% on the day. Additionally, the US treasury yields on 2, 5 and 10-year are in negative territory at 4.85%, 4.11% and 3.87%, respectively, and applied further pressure on the USD.

Regarding Thursday's European Central Bank (ECB) decision, markets have largely priced in a 25 bps hike, and investors will look for clues regarding forward guidance. As for now, the odds of a hike according to the World Interest Rate Possibilities (WIRP) in Septmeber fell below 50%, but in October and December are largely priced in, so messaging will be key.

EUR/USD Levels to watch

According to the daily chart, the technical outlook for the EUR/USD has improved as indicators are starting to gain strength but still, the bears are holding their ground.  The Relative Strength Index (RSI) with a slightly upward slope to the north, while the Moving Average Convergence Divergence (MACD) is still in negative territory, printing red bars. That being said, the bulls managed to defend the 20-day Simple Moving Average (SMA) so outlook for the EUR/USD is bright on the bigger picture.

Resistance levels: 1.1100, 1.1150,1.1190. 
Support levels: 1.1050 (20-day SMA), 1.1030, 1.1000.

 

EUR/USD Daily chart

 

 

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