EUR/USD Extends The Rally And Flirts With 1.0800 Ahead Of Fed

The buying interest around the European currency remains well and sound and pushes EUR/USD to the boundaries of the 1.0800 neighbourhood, or 5-week highs, on Wednesday.

EUR/USD Remains Bid On Fed-Day

EUR/USD extends the advance for the fifth consecutive session on Wednesday and remains well-bid ahead of the key FOMC event later in the European evening. On this, the Federal Reserve is widely expected to hike the Fed Funds Target Range (FFTR) by 25 bps to 4.75%-5.00%.

In the meantime, investors’ attention is shifting to the updated dots plot along with the press conference by Chief Powell, where a potential impasse in the Fed’s tightening stance should take centre stage.

Earlier in the session, Chair Lagarde was again on the wires and reiterated the absence of a trade-off between price and financial stability. She also renewed the bank’s pledge to bring down inflation at the time when she acknowledged that underlying inflation dynamics remain firm.

In the domestic calendar, the Current Account surplus in the broader Euroland widened to €17B in January (from €13B).

What To Look For Around EUR

EUR/USD keeps pushing higher and already trades at shouting distance from the key barrier at 1.0800 the figure ahead of the FOMC gathering.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB in a context still dominated by elevated inflation, although amidst dwindling recession risks for the time being.

Key events in the euro area this week: ECB Lagarde (Wednesday) – EMU Flash Consumer Confidence, European Council Meeting (Thursday) – European Council Meeting, EMU, Germany Flash PMIs (Friday).

Eminent issues on the back boiler: Continuation, or not, of the ECB hiking cycle. Impact of the Russia-Ukraine war on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD Levels To Watch

So far, the pair is gaining 0.20% at 1.0787, and the break above 1.0793 (monthly high March 22) would target 1.0804 (weekly high February 14) en route to 1.1032 (2023 high February 2). On the flip side, there is initial support at 1.0516 (monthly low March 15), seconded by 1.0481 (2023 low January 6) and finally 1.0329 (200-day SMA).

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