EUR/USD Daily Chart Analysis – 2024-03-20

The EUR/USD pair showed stability in Asian trading, with a slight opening gap lower at 1.0865, hovering within a tight range of 1.0850 to 1.0880. The trading inertia can be partially attributed to the Japanese holiday, but also to cautious anticipation of the upcoming Federal Reserve decision. On the technical front, immediate resistance lies near the 10-day Moving Average (MA) at 1.0905, with selling pressure expected just below the 1.0900 level. Conversely, support is situated around 1.0830/50, a significant technical juncture where the 50% Fibonacci retracement of the February to March rise meets the 200-day MA. A bearish break below 1.0820 could expose the next key Fibonacci level at 1.0807.

Fundamental Analysis: Fundamentally, the focus is squarely on the Federal Reserve’s decision and its implications for forward guidance. The bond market is currently pricing in a marginal hawkish tilt, as indicated by higher U.S. yields. The Fed’s dot plot, which previously projected three rate cuts in 2024, might undergo a revision, possibly reducing it to two. The EUR/USD pair’s trajectory will be significantly influenced by the bond market’s reaction to the Fed’s projections and policy statements.

Overall Market Sentiment: In anticipation of critical policy insights from the Federal Reserve, the market sentiment is poised on a knife-edge, reflecting the balance of technical support and resistance levels, along with the significant fundamental event risk.

Sentiment Percentage Breakdown:

• 40% Positive: Some optimism is sustained by the pair’s resilience above immediate support levels and the possibility of less aggressive Fed rate cuts.
• 30% Neutral: A notable portion of sentiment remains neutral, reflecting the wait-and-see approach adopted by traders ahead of the Fed’s decision.
• 30% Negative: Concerns persist about the potential hawkish shift in Fed policy, which could fuel dollar strength and press the EUR/USD lower.

The positive sentiment stems from the EUR/USD’s ability to hold above critical support, while neutral sentiment dominates due to the policy uncertainty. The negative sentiment acknowledges the possibility of a hawkish surprise from the Fed that could elevate U.S. yields further, potentially undermining the euro.