EUR/USD hovers around 1.1260 ahead of the Fed

• The shared currency recovered some of its Tuesday’s losses, is up some 0.05%
• The EUR/USD is range-bound in familiar levels, waiting for the Fed.
• EUR/USD Technical Outlook: Bearish bias with the YTD low is at risk of being broken.

The EUR/USD barely advances during the New York session, trading at 1.1260 at the time of writing. A risk-off market mood spurred by Wednesday’s Federal Reserve monetary policy decision looms the financial markets. US equities are down in the day, while US bond yields rise, while the greenback is slightly up.

The EUR/USD pair remained subdued through the overnight session, in a familiar fashion, ahead of the Fed and could not break above the 50-hour simple moving average (SMA) around 1.1280. In fact, it dropped near the December 14 swing low at 1.1252, fading the downward move, settling at current levels.

Before the Wall Street opened, the US Commerce Department reported that Retail Sales for November rose by 0.3%, lower than the 0.8% foreseen. Meanwhile, excluding Autos, sales increased by 0.2%. The aforementioned was mainly ignored by investors, which in turn, on Tuesday’s witnessed the highest increase in 10-year of prices paid by producers, adding fuel to expectations of a faster Fed bond taper process, so expected by the markets.

What’s priced in?

The market expects that the Fed would accelerate the reduction of its QE, at least by double of the $15 Billion announced on November’s meeting. Additionally, the Summary of Economic Projections (SEP) with its “dot-plot” would be scrutinized, as market participants look for signals of rate hikes, how many, and in which time frame. 

Money market futures expect at least two rate hikes by 2022, three in 2023, and two more in 2024, each one of 25 basis points, with rates closing almost to 2%. 

In the meantime, US bond yields are almost flat. The US 10-year Treasury yield sits at 1.446%, unchanged, while the US Dollar Index edges up 0.03%, at 96.60.

EUR/USD Price Forecast: Technical outlook

The EUR/USD daily chart shows the pair has a downward bias, further confirmed by a descending triangle in a downtrend called a “pennant.” Additionally, the daily moving averages (DMAs) remain above the spot price, with the 50, 100, and 200-DMAs located at 1.1447, 1.1600, and 1.1788, respectively.

On the downside, a break below the December 7 pivot low at 1.1227 would expose the YTD low at 1.1186. The breach of the latter would push the pair towards the figure at 1.1100, followed by the pennant’s target at 1.1041.

To the upside, the first resistance would be 1.1300. In the event of the figure giving way for EUR bulls, that would expose the December 8 high at 1.1354, followed by a test of 1.1400.