EUR/USD forecast ahead of Fed decision and US GDP data

The EUR/USD darted higher as the focus among investors shifted to the upcoming Federal Reserve interest rate decision and the US GDP data. The pair rose to 1.1840, which was the highest level since Thursday last week.

Fed decision and US GDP data

The Federal Reserve will conclude its two-day monetary policy meeting during the American session. This will be a pivotal meeting considering that it comes at a time when the US is seeing more Covid cases and lower vaccination rates. 

As a result, on Tuesday, the CDC advised people, including the vaccinated, to keep wearing masks to prevent the spread. At the same time, the number of breakthrough infections has been rising, putting risks to the recovery.

Meanwhile, US real yields have dropped to the negative zone while inflation expectations have declined. The 10-year Treasury yield has dropped to the lowest level since January this year.

Therefore, the ongoing activity in the bond market will likely incentivise the Fed to maintain its monetary policy. It will therefore leave interest rate unchanged between 0% and 0.25%. Since this was supposed to be a meeting about tapering, the bank will likely maintain its asset purchases. In a note, an analyst at Bank of America said:

“This was supposed to be the meeting where they were really focusing on tapering. We think the market is going to end up hearing Powell sound neutral to dovish, at least from a rates market perspective, primarily because he’s going to keep talking about downside risks from Covid.”

The EUR/USD will also react to the upcoming US GDP numbers that will be published on Thursday. The numbers are expected to show that the economy expanded by 8.5% in the second quarter after rising by 6.4% in Q1. This will be the best performance since Q3 of 2020 when the economy was moving from the first lockdowns.

EUR/USD forecast

The EUR/USD has been in a tight range recently. It is trading at 1.1825, which is higher than this week’s low of 1.1750. On the 3H chart, the pair has moved above the upper side of the falling wedge pattern. At the same time, it has moved above the volume-weighted moving average (VWMA), which is a sign that bulls are coming back. The RSI and Stochastic oscillator have also kept rising. Therefore, the pair will likely maintain the momentum as bulls target the next key level at 1.2000.