The near-term EUR/USD trend lower has run its course and more short-covering is likely if the U.S. Federal Reserve doesn't surprise markets by delivering a hawkish message at the end of its meeting on Wednesday.
The Fed will not be releasing economic forecasts or a dot-plot at this meeting so it's unlikely to be a major event for markets.
They are expected to reiterate that inflation is transitorynL1N2OZ18D.
The risk for EUR/USD would be if the statement or Fed Chair Jerome Powell signals the tapering of their bond purchases may happen sooner rather than later, but most analysts believe they will wait for the September meeting to do that.
The euro is benefiting from investor outflows from emerging markets due to the impact of the Delta variant of the coronavirus on the developing world and China's widening regulatory crackdown nL4N2P3084nL1N2P329AnL1N2P30EK.
EUR/USD broke above the 21-day moving average for the first time since June 11 on Tuesday.It has traded back above the 21 DMA, currently at 1.1819, early Wednesday. The 5 DMA is now tilting higher and about to cross above the 10 DMA, which would signal that the move lower has reached a point of exhaustion.
A break above 1.1845 initially targets the July 12 high at 1.1884, with the short-covering correction potentially leading to 1.1948, the 38.2 Fibonacci retracement of the 1.2266-1.1752 decline.
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