The EUR/USD pair surged to 1.1854 USD on Wednesday, reaching its highest level since September 2021. Investors are positioning ahead of the Federal Reserve’s highly anticipated interest rate decision, due later today.
Markets are almost fully pricing in a 25-basis-point cut, with 67 basis points of cumulative easing expected by year-end. These expectations are reinforced by recent labour market softening, despite inflation remaining above the Fed’s 2% target.
Significant attention will also be focused on the updated quarterly dot plot, which may offer critical insights into the future path of monetary policy.
The trading session is expected to be highly volatile.
On the data front, US retail sales rose in August for the third consecutive month, underscoring the resilience of consumer spending over the summer.
Broad-based USD weakness has driven the dollar lower against nearly all major currencies.
Technical analysis: EUR/USD
Four-hour chart
On the H4 chart, EUR/USD formed a consolidation range around 1.1762 USD before breaking upward to complete an impulsive move to 1.1877 USD. The pair now appears poised for a corrective decline towards 1.1762 USD. This outlook is supported by the MACD indicator: although the signal line remains above zero, it has reached overextended levels. This suggests that a near-term pullback is likely.
One-hour chart
On the H1 chart, the pair completed its ascent to 1.1877 USD and is now forming a consolidation range below this level. A downward breakout is expected, with an initial decline towards 1.1762 USD likely. A brief rebound towards 1.1820 USD may follow. Selling pressure could then resume, with targets at 1.1630 USD and potentially 1.1550 USD. The Stochastic oscillator confirms this bearish near-term bias, with its signal line positioned below 50 and trending downward towards 20.
Conclusion
The euro’s rally to multi-year highs reflects broad USD weakness and elevated expectations for Fed easing. However, technical indicators suggest the pair is overextended and due for a correction. Today’s Fed decision – particularly the tone of the statement and updated dot plot – will be crucial in determining whether this pullback deepens or becomes a buying opportunity. Traders should prepare for significant volatility following the release.
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