EUR/USD hovered just below the December monthly low as investors awaited Wednesday's Fed meeting conclusion, with charts signaling a potential correction lower, though any dips might be shallow.
Daily charts showed the 10-day moving average providing support but near-overbought RSI implying bullish momentum was fading and, thus, growing risk of a pull-back.
Should support in the 1.2050/60 region break, EUR/USD could complete a short-term double top pattern, leading to the potential for a test of 1.1930/50 support.
If a buy-the-rumor-sell-the-fact scenario plays out for EUR/USD after the Fed meeting, that support could be tested, but longer-term bulls would see it as a buying opportunity.
The Fed's policy moves this year have left investors believing the economy will extend its recovery.
Steepening U.S. yield spreads highlight that belief.
After a brief correction U.S. 10-yr/3-mo and 10-yr/2-yr spreads have risen.
EUR/USD moves have been correlated to spreads.
Persistent economic recovery optimism would benefit export dependent European economies, leading investors to seek EUR/USD buying opportunities as the probability for test of the 2018 yearly high at 1.2556 increases.
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