EUR/USD could stage a rebound on cautious tone from the Fed

EUR/USD has been fluctuating in a very tight range with investors remaining on the sidelines while gearing up for the Federal Reserve's policy decisions. A cautious Fed could trigger a correction in the dollar and help EUR/USD rebound, FXStreet’s Eren Sengezer reports.

Cautious Fed to trigger a rebound

“The Fed is widely expected to announce its first 50 basis points (bps) rate hike since 2000 and confirm that it will start shrinking the balance sheet by $95 billion per month from June. The impact on the dollar's valuation is likely to remain limited since markets have been pricing them since March.”

“A 'buy the rumour sell the fact' market reaction could trigger a correction in the DXY and open the door for a rebound in EUR/USD. In case Powell adopts a cautious tone regarding future rate hikes, the greenback is likely to come under selling pressure and help the pair push higher.”

“A mention of 75 bps rate hikes being on the table in the upcoming meetings to tame inflation could be seen as an extremely hawkish stance and boost the dollar regardless of the currency's overbought conditions.”

See – Fed Preview: Forecasts from 18 major banks, 50bps is universally expected