EUR/USD Vulnerable to Range-Bound Conditions as Post-FOMC Strength Fade

EUR/USD pulls back from a fresh monthly-high (1.1448) even though the Federal Reserve adjusts the forward-guidance for monetary policy, and the euro-dollar exchange rate may continue to consolidate over the coming days as it snaps the series of higher highs & lows from earlier this week.

The FOMC appears to be on track to keep the benchmark interest rate on hold throughout 2019 as the central bank plans to wind down the $50B/month in quantitative tightening (QT) by the end of September, and the revised approach for monetary policy may continue to produce headwinds for the U.S. dollar as the committee pledges to be ‘patient as it determines what future adjustments to the target range for the federal funds rate may beappropriate.’

It appears as though the FOMC is on track to abandon the hiking-cycle as ‘data arriving since September suggest that growth is slowing somewhat more than expected,’ and Fed officials may sound more dovish over the coming months as the updated Summary of Economic Projections (SEP) ‘point to a modest slowdown.’

It remains to be seen if the FOMC will continue to revise the dot-plot as the longer-run interest rate forecast now sits at 2.50% to 2.75% as Chairman Jerome Powell warns that ‘it may be some time before the outlook for jobs and inflation calls clearly for a change in policy,’ and the Fed may face accusations of committing a policy error after implementing four rate-hikes in 2018 as U.S. President Donald Trump largely blames the central bank for the slowing economy.

As a result, the U.S. dollar may face a more bearish fate over the near-term as the Fed responds to the weakening outlook for growth, with EUR/USD at risk of extending the rebound following the European Central Bank (ECB) meeting as the exchange rate clears the monthly opening range and breaks out of the downward trend from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

EUR/USD Rate Daily Chart

The broader outlook for EUR/USD has become clouded with mixed signals as both price and the Relative Strength Index (RSI) break out of the bearish formations from earlier this year after trading to a fresh yearly-low (1.1320), and the lack of momentum to extend the recent series of higher highs & lows from earlier this week may generate range-bound conditions going into the last full-week of March.

As a result, failure to hold above the Fibonacci overlap around 1.1390 (61.8% retracement) to 1.1400 (50% expansion) brings the 1.1340 (38.2% expansion) region on the radar, with the next downside area of interest coming in around 1.1270 (50% expansion) to 1.1290 (61.8% expansion).

For more in-depth analysis, check out the 1Q 2019 Forecast for the Euro

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.