We’re just hours away from the Federal Reserve’s interest rate decision. With markets fully pricing in no change, it is the tone that matters. The CME FedWatch tool implies a 100% probability that rates will remain on hold today, and we have to look as far out as September 2027 before the odds of a hold fall below 50%. Even then, the probability of a 25bp cut is just 34.8%, while there is still a 4.5% implied chance of a 25bp hike.
On one hand, a strong case can be made for a more hawkish tone, given rising inflation expectations driven by higher oil prices amid the conflict in Iran and the closure of the Strait of Hormuz. On the other hand, Jerome Powell — who is set to be replaced by Trump’s pick, Kevin Warsh — may simply keep the engine running and leave the inflation fight to his successor.
This sets up a near-term binary scenario for the US dollar. A hawkish tone could help USD regain traction, while a rinse-and-repeat hold may weigh on the dollar and support EUR/USD in the near term. From a technical perspective, I’m leaning towards a weaker US dollar, which could allow AUD/USD to regain traction and push towards the 0.72 breakout level.
View related analysis:
- Australian Dollar Outlook: AUD/USD, AUD/JPY, GBP/AUD Ahead of CPI, FOMC
- Japanese Yen Outlook: AUD/JPY Breakout Ahead of BOJ, USD/JPY Holds Steady
- FX Futures Positioning: US Dollar, EUR, JPY, CAD | COT report
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Euro Price Action Outlook Ahead of FOMC: EUR/USD, EUR/CAD, EUR/JPY Levels to Watch
EUR/USD Technical Analysis: Euro vs US Dollar
EUR/USD has been choppy in recent sessions, although the euro vs US dollar continues to hold a key support zone around the 200-day EMA and the 1.1665 prior high. Recent price action has printed a bullish piercing pattern and hammer at these levels, suggesting demand is building around the lows.
- If Powell delivers a “copy-paste” hold, EUR/USD could bounce from support and push towards the monthly R1 (1.1777), near the 1.18 handle
- However, a bullish catalyst for the US dollar could trigger a break below 1.1643, signalling further downside for EUR/USD and bringing the 200-day SMA into focus near 1.16
Source: Forex.com, TradingView
EUR/JPY Technical Analysis: Euro vs Japanese Yen
The daily chart shows a strong uptrend for EUR/JPY, with the euro vs Japanese yen rallying to within pips of its 1990 high. However, the 36-year high may have been short-lived, as the session closed with a bearish engulfing candle. Subsequent price action appears corrective, forming a potential falling wedge — a pattern that often acts as a bullish reversal signal within an uptrend.
Highs and lows are converging, although it remains unclear whether the wedge is near completion. Tuesday’s bullish pin bar at the monthly R2 pivot and 20-day EMA suggests a swing low may be forming. This makes the 186 level a key support zone for EUR/JPY, as it could determine whether the euro vs Japanese yen resumes its uptrend or enters a deeper retracement.
- The bias is for EUR/JPY to retest its 1990 high while prices hold above 186
- A break below 186 would signal a deeper pullback, bringing the 185 level into focus, near a weekly VPOC and high-volume node
Source: ICE TradingView
EUR/CAD Technical Analysis: Euro vs Canadian Dollar
EUR/CAD remains a pair to watch, although levels need to align for favourable risk-to-reward on bullish setups. The euro vs Canadian dollar rallied cleanly from the March low to the April high, before stalling at the monthly R1 pivot resistance. Since then, EUR/CAD has retraced around half of those gains, forming a bullish engulfing candle just above the monthly pivot point and 50% retracement level — raising the possibility that a swing low is forming.
With EUR/CAD prices hovering around the 1.60 handle, a minor pullback within Tuesday’s range could improve the risk-to-reward profile for bulls. This may pave the way for a rebound towards 1.61, near the 50% retracement level of the prior decline.
Source: ICE TradingView
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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