EUR/USD Price Analysis: Stabilizes above 1.1000 as Fed-ECB policy divergence to trim ahead

• EUR/USD has shifted its business above 1.1000 amid less-hawkish monetary policy by the Fed.
• A 50 bps interest rate hike by the ECB will trim Fed-ECB policy divergence.
• The major currency pair has shifted above the 50% Fibo retracement.

The EUR/USD pair has sifted its auction profile above the psychological resistance of 1.1000 in the early Asian session. The major currency pair demonstrated a power-pack rally after surpassing Jan 26 high at 1.0930 as the Federal Reserve (Fed) trimmed the scale of the interest rate hike to 25 basis points (bps) and pushed borrowing rates to the 4.50-4.75% range. In December’s policy meeting, Fed chair Jerome Powell slashed the rate hike scale to 50 bps after four straight 75 bps rate hikes.

For further action, investors will keenly focus on the interest rate decision by the European Central Bank (ECB). As per the consensus, ECB President Christine Lagarde might hike interest rates by 50 bps to 2.50%, which will trim the Fed-ECB policy divergence further.

The US Dollar Index (DXY) has displayed a fragile pullback after printing a fresh nine-month low at 100.64 amid the risk appetite theme.

EUR/USD has scaled above the 50% or halfway Fibonacci retracement (placed from January 2021 high at 1.2350 to September 2022 low at 0.9536) at 1.0942 on a weekly scale, which indicates that bearish bias on a longer horizon has faded away. The 10-period Exponential Moving Average (EMA) at 1.0720 is scaling north firmly, which indicates that the upside trend carries immense strength.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that bullish momentum is highly active. It is worth noting that the momentum oscillator is not showing any sign of bearish divergence and an overbought situation.

To stretch the upside move, the shared currency pair needs to surpass a fresh nine-month high at 1.1033, which will drive the asset toward April 1 high at 1.1076 and March 18 high at 1.1119.

On the flip side, a decisive break below Jan 26 high at 1.0930 will drag the asset toward January 24 low at 1.0856. A breakdown of the latter will expose the asset for more downside toward January 31 low around 1.0800.

EUR/USD weekly chart