EUR/USD ripe for a breakout ahead of Fed interest rate decision

The EUR/USD pair rose by 35 basis points as traders braced for a highly a stream of blockbuster data from Europe and the US. We will receive the eurozone business confidence data, US Q1 GDP data, the Fed interest rate decision, and German CPI data. Tomorrow, we will get the ECB rates decision and the weekly jobless claims from the US.

EUR/USD optimistic ahead of Fed interest rate decision

The EUR/USD is optimistic as traders brace for the interest rate decision by the Fed. This increase is in line with the overall dollar weakness that has been going on since yesterday. In the past two days, the dollar index has dropped from a high of 100.2 to the current low of 99.70.

The dollar has declined for two main reasons. First, traders believe that demand for other currencies will rise as business activity start to rise in their countries. Second, analysts believe that the Fed could guide for a lower period of low interest rates and quantitative easing. Indeed, some analysts are projecting that the Fed’s balance sheet could soar to more than $10 trillion by December. While this is a bigger number, it is just about 50% of the US GDP. In Japan, the BOJ balance sheet is more than 105% of the country’s GDP.

Most analysts expect the Fed to leave interest rate unchanged at the current range of 0 and 0.25%. They also expect the bank to say that it will keep rates low as long as it is necessary.

EUR/USD waits for eurozone confidence data

We will also receive business and industrial confidence data from Europe today. This data will come from the Economic and Financial Affairs department. Analysts polled by Refinitiv expect that the business and consumer survey data to decline from last month’s 94.5 to 74.5. They expect the consumer confidence to remain unchanged at minus 22.7.

Meanwhile, sentiment in the service sector is expected to have declined from minus 2.2 to minus 27.0. It is worth noting that the service PMI from the region slumped to a record low of 12 according to data from Markit. Meanwhile, the industrial sentiment is expected to have declined from minus 10.8 to minus 25.7.

Later on, we will receive the German inflation numbers and America’s pending home sales numbers. These will come a day before the ECB delivers its rates decision.

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EUR/USD technical outlook

On the hourly chart, we see that the EUR/USD pair found significant resistance at the 61.8% Fibonacci retracement level at 1.0890 yesterday. Bears took over and pushed the pair to a low of 1.0817. The pair is now attempting to pare back some of these losses. I expect the pair to be relatively volatile today as traders digest all this data and information.

I will consider a move above the 50% retracement level bullish for the pair because it will show that there are still buyers who want to retest the yesterday’s high.

On the other hand, I will consider moves below 1.0825 bearish. This level is important because it is a confluence of the 38.2% Fibonacci retracement level and the 100-day EMA.

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