EUR/USD Weekly Forecast: Fed’s Interest Rate Decision Looms Large

The EUR/USD pair entered the weekend after experiencing slight selling, after it recorded the week’s highs during Thursday’s session.

The EUR/USD pair ended the week with strong gains. This upward price movement did not come easily. The EUR/USD pair bottomed out around 1.06665 on Tuesday and almost challenged the decline again on Wednesday. However, the upward movement started to appear, and by Thursday, the EUR/USD pair was trading around a high of around 1.07875. The EUR/USD pair witnessed slight selling before entering the weekend and will start trading tomorrow near the level of 1.07480.

Last Thursday’s highs touched values ​​not seen since May 24, but EUR/USD remains within the bottom depths of the one-month charts. The EUR/USD has not been able to gain momentum from its main counterpart – the GBP/USD technically. The US Federal Reserve will announce the Federal Funds Rate next Wednesday and the comments are highly anticipated.

While the GBP/USD is near one-month highs, the EUR/USD is still within the lower depths of a medium-term price range. Speculators have to acknowledge that the EUR/USD is being treated with caution by financial institutions, as other major currency pairs have seen some weakness from the US dollar developing further. It appears that many financial institutions are preparing for a pause from the US Federal Reserve’s interest rate hike on June 14th, but it is clear that the tension remains.

CPI data from the US may be an early indication regarding the Fed’s decision

• Inflation figures via CPI will be released from the US on Tuesday and the results should be monitored.
• The EUR/USD sell-off over the weekend indicates some tension overshadowing expectations for the Fed’s interest rate decision this Wednesday.
• The European Central Bank will hold a press conference on Thursday and will definitely react to the US Federal Reserve’s interest rate decision with its own statements.

The speculative price range for EUR/USD is from 1.06500 to 1.08475

The EUR/USD pair may remain in the oversold zone by many speculators. It is possible that this pair’s ability to post gains last week fueled some bullish optimism regarding the prospects for additional bullish price movement. However, the sell-off over the weekend showed that cautious trading still dominates the EUR/USD pair. Early trading this week should be monitored to see if EUR/USD can hold the 1.073000 level, and if that is achieved, it could indicate that the sentiment is still slightly bullish regarding the near-term outlook.

CPI data from the US on Tuesday and the Fed on Wednesday should be watched. A stronger inflation outcome could cause concern in the EUR/USD before the Fed speaks on Wednesday, and the EUR/USD could suffer additional selling.

However, if the US inflation figures are weaker than expected on Tuesday, this could lead to buying in the EUR/USD. Short-term traders should be careful early this week and be aware of the potential for aggressive price action if surprises start to hit the markets. The inability of EUR/USD to sustain prices near 1.07800 is a warning sign that behavioral sentiment remains fragile.

If the Fed does in fact show increasingly dovish rhetoric, saying it will not raise interest rates this Wednesday and will wait and see for US data, that would be positive for EUR/USD. However, traders who bet on the outcome of the Fed’s speech may be safer if they do not expect an increase in interest rates. A cautious outlook warns that inflation remains a malaise that may have to be dealt with again. This may translate into some buying in EUR/USD and a test of 1.08000 and above, but it also fuels some headwinds capping the bullish momentum.