EUR/USD stays bulls above 1.0800 on Fed’s hawkish halt, ECB eyed

• EUR/USD grinds higher at one-month top, prods three-day uptrend on ECB day.
• Fed matches hawkish halt expectations, hopes of July rate hike bolster importance of incoming data.
• FOMC Chair Jerome Powell backs “meeting by meeting” approach but hints at July as ‘live’ meeting.
• ECB’s 0.25% rate hike is given but hawks have less force to defend the forte, suggesting Euro pullback.

EUR/USD bulls are on a joyride as they take a breather at the highest levels in a month after rising for three consecutive days before retreating from 1.0864, to 1.0830 amid early hours of the European Central Bank (ECB) monetary policy meeting day, i.e. Wednesday. It’s worth noting that the US Federal Reserve (Fed) matches market forecasts of pausing the rate hike trajectory but appeared hawkish and weighed on the Euro pair. However, the hawkish hopes from the bloc’s central bank keep the buyers hopeful ahead of the key event.

On Wednesday, the Federal Open Market Committee (FOMC) decided to keep the benchmark Fed rate unchanged at the rate of 5.0-5.25%, matching market expectations of pausing the 1.5-year-old rate hike that propelled rates for 10 consecutive times. Even so, the hawkish signals from the FOMC Economic Projections and Fed Chair Powell’s speech underpin renew bullish bias about the US central bank.

That said, the dot plot rose 30 bps from March for 2024 and 2025 to 4.6% and 3.4% respectively while the median rate forecasts suggest two more rate increases in 2023. Further, no rate cuts nor recession is expected in the current year whereas the median estimation for the US Gross Domestic Product (GDP) rose to 1.0% from 0.4% in March. Additionally, Powell’s speech unveils a “meeting by meeting” approach for decision-making but signals July as a ‘live’ meeting, suggesting a 0.25% rate hike.

Elsewhere, Germany’s Wholesale Price Index dropped 1.1% in May, versus -1.0% expected and -0.4% prior whereas Eurozone Industrial Production rose 1.0% for April versus 0.8% expected and -3.8% prior (revised). On the other hand, the US Producer Price Index (PPI) for May dropped to 1.1% YoY versus 1.5% expected and 2.6% prior.

Amid these plays, markets remained volatile and Wall Street closed mixed whereas the US 10-year Treasury bond yield eased 1.0 basis point (bps) to 3.79% but its two-year counterpart grind higher at the three-month top to 4.70%.

Moving on, second-tier data from the bloc may entertain the EUR/USD pair traders, together with the pre-ECB speculations amid hopes of witnessing a 0.25% rate hike. That said, the Euro bulls need hawkish comments from President Christine Lagarde, as well as upbeat economic projections, to keep the reins.

Also read: ECB preview: Looking beyond next week

Technical analysis

A daily closing beyond the 100-DMA hurdle of around 1.0800, now immediate support, keeps EUR/USD buyers hopeful. Even so, a three-month-old horizontal resistance near 1.0850-55 guards immediate upside of the Euro pair.