EUR/USD bulls are pressured near 1.1250 into the FOMC

• EUR/USD is under pressure on the daily time frame as traders position for the Fed.
• Super Thursday will be a critical day for the euro with the ECB meeting. 
• Central bank divergence themes will be a driving force for EUR/USD.

EUR/USD is trading flat on the day so far as the markets pause for the Federal Open Market Committee's two-day meeting outcome.  The single currency is trading near 1.1260 within the 1.1253/69 range on the day so far. The US dollar was a little firmer against most G10 on Tuesday while EUR/USD rallied in London trade to 1.1320, only to slide down to 1.1260 in NY as data revealed a shocking truth about the path of the US inflation.

The US Producer-Price index climbed 0.8% in November, signalling that US inflation is likely to remain high well into 2022. Then, with the shocking +9.6Y YoY, US yields bounced with the report easily exceeding expectations and marking the biggest advance since a major change in the index in 2009. The 2-year government bond yields rose from 0.64% to 0.66%, and the 10-year government bond yields rose from 1.42% to 1.44%.

Fed policymakers are anticipated to announce they will accelerate a winddown of monthly bond purchases in response to inflation that continues to run hot. The statement and quarterly forecasts will be followed 30 minutes later by Chair Powell’s press conference.

''The taper pace will likely be doubled to $30bn per month, consistent with QE ending in March,'' analysts at TD Securities expect. ''Officials will likely also convey a more hawkish tone through the statement, the economic projections, and the dot plot. The median dot will probably show a 50bp increase in 2022.''

As for rates, ''the market is priced for an earlier end to QE,'' the analysts said. ''The front-end and curve will be sensitive to messaging around hikes and tolerance for high inflation.''

In Forex, the analysts said, ''while a lot is in the price, as a practical matter, there is very little to offset USD firmness as other central bank decisions this week will pale in comparison to a hawkish Fed.''

EUR/USD technical analysis

The price is finding a path below 1.1200 a tough task, although the outcome of this week's central bank meetings could result in a significant catalyst for a strong US dollar.

The price is currently testing support. If it holds, then a restest of the prior support would be expected to act as resistance, at least in initial tests. Should the resistance hold, however, then the downside will be vulnerable and a retest of 1.1200 inevitable.