Euro Trades With Caution Against US Dollar Ahead Of Fed’s Policy Meeting

• EUR/USD edges down to near 1.1535 in the countdown to the Fed’s policy outcome.

• The Fed is widely anticipated to hike interest rates by 25 bps to the 3.75%-4.00% range.

• The ECB is expected to deliver one more interest rate hike this year.

The Euro (EUR) trades studiedly at around 1.1535 against the US Dollar (USD) during the European trading session on Wednesday. The major currency pair trades cautiously ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT.

The CME FedWatch tool shows that the odds of the Fed hiking interest rates by 25 basis points (bps) to 3.75%-4.00% at the policy meeting later in the day are 92.5%.

This suggests that the Fed will break its five-meeting hold streak and kick-off the monetary tightening cycle.

With the Fed looking almost certain to tighten monetary conditions, market reaction would be majorly influenced by the monetary policy statement and Chairman Kevin Warsh’s remarks on inflation and the economic outlook.

In the policy meeting, investors will also focus on Fed’s dot plot, which shows where policymakers see interest rates heading in the near term.

According to the CME FedWatch tool there is an almost 79% chance that the Fed will deliver at least two interest rate hikes by the year-end.

On the Eurozone front, European Central Bank (ECB) officials have signaled that inflationary pressures could remain higher and prompt the need of more interest rate hikes this year. Last week, the ECB raised its policy rates by 25 bps, as expected.

EUR/USD Technical Analysis

In the daily chart, EUR/USD trades at 1.1532, keeping a bearish near-term tone as it holds below the 20-period exponential moving average (EMA) at 1.1589.

The pair has retreated from recent highs and the Relative Strength Index (14) around 40 hints at persistent downside pressure rather than an oversold extreme, suggesting sellers remain in control while the recovery attempts are capped by nearby dynamic resistance.

On the topside, the 20-period EMA at 1.1589 is the first resistance to clear for bulls to ease the current downward bias, with a sustained break above that level needed to suggest a more meaningful rebound. On the downside, the psychological figure of 1.1500 is the key support level.