EUR/USD bulls cheer Fed’s hesitance near 1.1110 hurdle despite banking crisis, ECB eyed

• EUR/USD grinds higher during three-day winning streak, prods key resistance.
• Fed matches market forecasts with 0.25% rate hike but opens door for policy pivot and weigh on US Dollar.
• Fears surrounding US banks, debt ceiling expiration also exert downside pressure on greenback despite upbeat US data.
• ECB is expected to lift benchmark rates by 25 bps but rate guidance will be the key for Euro bulls to watch.

EUR/USD seesaws around intraday high as bulls take a breather after a three-day uptrend near 1.1090 heading into the key European trading session on Thursday.

The Euro pair refreshed its weekly high after the Federal Reserve’s (Fed) hidden dovish monetary policy announcements. However, the cautious mood and banking crisis prods the bulls ahead of the all-important European Central Bank (ECB) Monetary Policy Decision.

On Wednesday, the Fed fails to convince the US Dollar buyers despite increasing the benchmark rates to the highest levels since 2007 as the Monetary Policy Statement opens the door for speculations surrounding a pause in the Fed’s policy tightening. That said, Fed Chairman Jerome Powell also appeared positive while ruling out fears of a banking rout. However, a dropping of the lines in the statement suggesting the need for further rate hikes gained major attention and weighed on the US Dollar despite the hawkish move by the Fed.

In addition to the Fed’s 25 basis points (bps) rate hike, upbeat US data should have also challenged the EUR/USD bulls but did not amid the looming bank crisis in the US and fears of debt ceiling expiration.

That said, US ADP Employment Change rose to 296K for April from 142K prior versus 148K market forecast. Additionally, the annual pay growth declined to 13.2% from 14.2%. Further, ISM Services PMI improved to 51.9 in April versus 51.8 market forecasts and 51.2 previous readings. It’s worth noting, however, that the S&P Global Services PMI and Composite PMI for April eased to 53.6 and 53.4 versus 53.7 and 53.5 respective priors.

On the other hand, PacWest Bancorp teased an asset sale late Wednesday and propelled the market’s banking woes. Further, the White House statements suggesting debt limit default could cost 8.3 million job losses also weigh on the sentiment and the US Dollar.

Against this backdrop, S&P 500 Futures print mild losses by tracking the Wall Street benchmarks. It should be observed that holidays in Japan restrict bond market moves in Asia.

Looking forward, EUR/USD traders will pay attention to the ECB Monetary Policy Announcements as some on the floor do expect a 50 bps rate hike, versus a large majority suggesting 0.25% increase in the benchmark rates. Apart from the rates, the bloc’s central bank will also be eyed for clues of future actions as the latest growth numbers from the old continent have been softer while the higher rates are termed as credit-negative in the latest ECB update. Should the region’s central bank ignores all odds and remain hawkish, the major currency pair won’t hesitate to refresh the multi-month high.

Also read: ECB Preview: 25bps is not the same as 50bps

Technical analysis

EUR/USD defends the Federal Reserve-inspired gains with a three-week-old ascending trend channel, currently between 1.1110 and 1.0950. However, a divergence between the RSI (14) line and the EUR/USD price challenges the pair buyers ahead of the key event.