EUR/USD continues to track the range from earlier this month even as the Federal Open Market Committee (FOMC) pledges to further normalize monetary policy over the coming months, but the pair appears to be on the cusp of a near-term breakout as the bearish momentum abates.
The updated forecasts from Fed officials suggests the central bank will implement a 25bp rate-hike at each quarterly meeting in 2018 as the benchmark interest rate is projected to hit the 2.25% to 2.50% threshold by the end of the year.
However, the longer-run forecast for the benchmark interest rate continues to sit around the 2.75% to 3.00% threshold, with the U.S. dollar at risk of facing headwinds over the coming months as Chairman Jerome Powell and Co. show little to no interest in extending the hiking-cycle. With the FOMC largely on a preset course, market participants are likely to pay increased attention to the European Central Bank’s (ECB) forward guidance for monetary policy as the Governing Council remains on track to conclude its quantitative easing (QE) program in September.
In turn, the broader shift in EUR/USD behavior may continue to unfold in 2018, and the pair may stage a more meaningful advance over the coming days especially as the Relative Strength Index (RSI) snaps the bearish formation carried over from the previous month. 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
Keep in mind, EUR/USD may continue to face range-bound conditions ahead of the Easter holiday as the pair remains capped by the 1.2430 (50% expansion) region, with near-term support coming in around 1.2130 (50% retracement), which sits just beneath the March-low (1.2155). Nevertheless, recent developments in the RSI instills a constructive outlook for the euro-dollar exchange rate as the oscillator snaps the bearish formation carried over from the previous month, with a break/close above the 1.2430 (50% expansion) hurdle raising the risk for a run at the 2018-high (1.2556).
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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