EUR/USD stands at risk of facing choppy prices ahead of the Federal Open Market Committee’s (FOMC) interest rate decision on March 21 as the pair holds the range from earlier this month.

Fed Fund Futures

With the FOMC widely expected to raise the benchmark interest rate to 1.50% to 1.75% next week, market participants are likely to pay increased attention to the fresh updates from Chairman Jerome Powell and Co. as the central bank pledges to further normalize monetary policy over the coming months.

In light of the mixed data prints coming out of the U.S. economy, Fed officials may continue to project the benchmark interest rate ending the year around 2.00% to 2.25%, with the longer-run forecast holding around 2.75% to 3.00%. More of the same from the central bank may do little to boost the appeal of the greenback as it undermines speculation for four Fed rate-hikes in 2018, and EUR/USD may exhibit a more bullish behavior over the coming months as the FOMC remains reluctant to implement a more aggressive hiking-cycle.

Keep in mind, the European Central Bank’s (ECB) wait-and-see approach for monetary policy may continue to produce near-term headwinds for the single-currency as President Mario Draghi and Co. remains in no rush to wind down the asset-purchase program, and the Governing Council may stick to the current script throughout the first-half of 2018 as the ECB needs ‘to see further evidence that inflation dynamics are moving in the right direction.’ Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

EUR/USD Daily Chart

Near-term outlook for EUR/USD remains clouded with mixed signals as the pair holds the monthly range, with the euro-dollar exchange rate at risk of giving back the recent series of higher highs & lows as the Relative Strength Index (RSI) fails to snap the bearish formation carried over from the previous month. In turn, a break/close below the 1.2320 (23.6% retracement) to 1.2370 (61.8% expansion) region raising the risk for a move back towards 1.2230 (50% retracement), with the next area of interest coming in around 1.2130 (50% retracement) , which sits just beneath the March-low (1.2155).

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--- Written by David Song, Currency Analyst

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