There appears to be a growing consensus the Fed will deliver a 'hawkish cut' today and yet the EUR/USD has remained relatively buoyant.
If the Fed statement is neutral and vague and Chair Powell leaves the door slightly open for more easing, the EUR/USD could break higher. The CME FedWatch tool shows the market is fully pricing in a 25bps rate cut today to 1.50-1.75%.
But the pricing for a follow-up cut in December has fallen to around a 24% chance from over 50% in early October.
The hawkish turn in future expectations is due to a belief that Powell will emphasize Wednesday's cut is likely the end of the 'mid-cycle' adjustment made to ensure the economic expansion continuesnL2N27D0QB. If the Fed Chair instead emphasizes the Fed will remain data-dependent and act as appropriate on a meeting-by-meeting basis, the market may price in a rising chance of one more cut before year-end.
This would please risk assets and broadly weigh on the USD.
EUR/USD faces resistance around 1.1120/25 where the 10 and 100-day moving averages converge and a clear break above that level targets the Oct 21 trend high at 1.1180.
A fall below the 38.2 Fibonacci retracement of the 1.0879-1.1180 move at 1.1065 would indicate a top in place and more downside risk ahead.
eur/usd Click here