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Looking across markets for the best opportunities ahead of the Fed today, EURUSD looks like a solid setup for a long should USD weaken on the back of the meeting. If the Fed delivers a smaller .25% hike as expected and also scales back its rates outlook for the remainder of the year, either by bringing forward the likely end date of tightening or bringing down the projected endpoint, USD should weaken materially. In this scenario, EUR looks likely to gain firmly given the hawkish expectations ahead of the ECB tomorrow.  Additionally, the retail market is heavily short the pair, creating plenty of room for a further move higher.
 

Hawkish ECB Expectations

The ECB has recently made a concerted effort to dispel any idea that the bank might follow in the footsteps of the Fed, BOC, or RBA with its own rates pivot. ECB head Lagarde was clear in warning that with inflation still way too high, rates would need to stay at higher levels for longer and signaled that the bank would press ahead with further aggressive tightening. In light of this, the ECB might well use tomorrow’s meeting to reaffirm its hawkish stance, hiking rates by .5% along with signaling further such hikes to come. This should help keep EURUSD well supported near-term.
 

Technical Views

EURUSD

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Price continues to hug the top of the bullish channel running from 2022 lows. While the bull run has stalled for now just atop the 1.0785 level, with this area acting as support the focus is on a further push higher with 1.1126 the next objective for bulls. A break there will open the way for a further move towards 1.1503 next. To the downside, any break of 1.0785 will put 1.0364 and the channel lows in view as next support.

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