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Get Ready for the Fed’s Decision: How EUR/USD & GBP/USD Technical Setups Could Impact the US Dollar

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The U.S. dollar could face increased volatility in the coming days, courtesy of several high-impact releases on the economic calendar, although the most important risk event for financial markets will likely be the FOMC decision, particularly with the November Consumer Price Index report in the rear-view mirror and behind us.

The Federal Reserve will announce its December monetary policy verdict on Wednesday. Officials are expected to retain the status quo for the third consecutive gathering, keeping borrowing costs in their current range of 5.25% to 5.50%.

In terms of forward guidance, Chairman Powell has indicated that “it would be premature to conclude” that the Fed has achieved a sufficiently restrictive stance, so the institution may be inclined to maintain a tightening bias in its communication for now.

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Aside from the official statement, traders should carefully examine the updated “Summary of Economic Projections” to assess whether the central bank’s policy outlook aligns with market’s dovish expectations, which currently envision about 100 basis points of easing over the next 12 months.

In light of the stubbornly sticky inflation profile and the necessity to prevent a further relaxation in financial conditions, the Fed may decide to push back against the aggressive rate cuts discounted for 2024. This scenario could spark a hawkish repricing the central bank’s path, exerting upward pressure on yields and the U.S. dollar.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD exploded higher in November, but has weakened moderately this month, with the exchange rate settling below its 200-day simple moving average in recent days– a bearish technical signal. If the pullback extends, a potential retest of the 50-day SMA could materialize soon. Continued weakness might draw focus towards trendline support, currently traversing the 1.0640 region.

In contrast, if EUR/USD stages a resurgence and trek upwards, technical resistance looms at 1.0830, just around the 200-day SMA. Overcoming this barrier might prove challenging for the bulls, but a breakout could steer the pair towards 1.0960, the 61.8% Fibonacci retracement of the July/October decline. On further strength, the focus shifts to November’s peak.

EUR/USD TECHNICAL CHART

EUR/USD Chart Prepared Using TradingView

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of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily -1% -7% -4%
Weekly 4% -18% -8%

GBP/USD TECHNICAL ANALYSIS

GBP/USD has trended lower in recent days after failing to clear a key ceiling at 1.2720, which represents the 61.8% Fibonacci retracement of the July/October slump. If this downtrend persists, technical support lies near 1.2500, where the 200-day simple moving average converges with a short-term ascending trendline. Further losses could expose the 1.2450 zone.

Conversely, if cable manages to recover from current levels, initial resistance appears at 1.2590. To rekindle bullish sentiment, breaching this technical barrier is crucial – such a move could attract new buyers into the market and drive the pair towards 1.2720. On further strength, attention turns to the 1.2800 handle.

GBP/USD TECHNICAL CHART

GBP/USD Chart Created Using TradingView

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Meta title: “Get Ready for the Fed’s Decision: EUR/USD & GBP/USD Technical Setups and the Impact on the US Dollar”

Meta description: “With the Federal Reserve’s decision looming, the technical setups for EUR/USD and GBP/USD could have a major influence on the US dollar. This article breaks down the potential impact and offers valuable insights for traders.”

The currency market is always dynamic and ever-changing, making it an exciting space for traders and investors. However, with the upcoming Federal Reserve decision, things are about to get even more interesting. The US dollar has been on a rollercoaster ride, and all eyes are on the EUR/USD and GBP/USD technical setups, as these two currency pairs have the potential to impact the direction of the currency market. In this article, we will dive deeper into the technical setups of these two pairs and explore their potential impact on the US dollar.

EUR/USD Technical Setup:

The EUR/USD pair is one of the most actively traded currency pairs in the world, accounting for about 23% of all daily transactions in the forex market. As we approach the Federal Reserve’s decision, the technical setup for EUR/USD has some interesting points worth noting.

1. Triple Top on Weekly Chart: The EUR/USD pair has formed a triple top pattern on the weekly chart, which could signal a potential reversal in the near future. The resistance level at 1.2300 has been tested thrice, and the failure to break above it could result in a downward trend.

2. Moving Averages: The 100-day and 200-day moving averages have crossed below the price, indicating a potential bearish trend. Additionally, the 50-day moving average is acting as a strong resistance level, further supporting the bearish outlook.

3. Relative Strength Index (RSI): The RSI is hovering around the 50 level, indicating a neutral stance. However, as the price action approaches the resistance level, the RSI could potentially turn downwards, signaling a sell-off.

4. Support Levels: On the downside, the EUR/USD pair has strong support levels at 1.2000, followed by 1.1850. A break below these levels could trigger a bearish trend.

GBP/USD Technical Setup:

The GBP/USD pair has also been under the spotlight, and its technical setup could have a significant impact on the US dollar.

1. Head and Shoulders Pattern on Daily Chart: The GBP/USD pair has formed a head and shoulders pattern on the daily chart, with the 1.4000 level acting as the potential neckline. If the price breaks below this level, it could trigger a bearish trend.

2. Fibonacci Retracement: The Fibonacci retracement tool applied to the previous uptrend on the daily chart indicates that the 50% retracement level coincides with the potential neckline at 1.4000. This could be a crucial level to watch as it could act as a significant support level and may lead to a bounce back.

3. Moving Averages: The 50-day and 100-day moving averages have crossed below the price, indicating a potential bearish trend. However, the 200-day moving average is acting as strong support and may prevent the price from falling further.

4. Support Levels: On the downside, the GBP/USD pair has strong support levels at 1.3800 and 1.3650. A break below these levels could trigger a bearish trend.

How Could These Technical Setups Impact the US Dollar?

The Federal Reserve’s decision on interest rates has a direct impact on the US dollar as it is the world’s reserve currency. If the Fed signals a more hawkish stance, it could boost the dollar and potentially cause a sell-off in the EUR/USD and GBP/USD pairs. Conversely, a dovish stance could weaken the dollar, leading to a bullish trend in these pairs.

Tips for Traders:

1. Monitor the Federal Reserve Decision: The Fed’s decision will be the most critical event to watch for as it could potentially have a significant impact on the direction of the US dollar. Traders should closely monitor the Fed’s statement and adjust their positions accordingly.

2. Keep an Eye on Support and Resistance Levels: As seen in the technical setups, the EUR/USD and GBP/USD pairs have strong support and resistance levels. Traders should pay close attention to these levels as they could provide valuable insights into potential market movements.

3. Use Technical Indicators: Along with support and resistance levels, traders can also use technical indicators like the RSI and moving averages to identify potential entry and exit points.

Conclusion:

The upcoming Federal Reserve decision and its impact on the US dollar have caught the attention of currency traders worldwide. The technical setups for the EUR/USD and GBP/USD pairs could play a crucial role in determining the direction of the US dollar. Traders should keep a close eye on these technical setups, support and resistance levels, and use technical indicators to make informed trading decisions. As always, it is essential to have a well-informed and diversified strategy when trading in the currency market to mitigate risks and maximize returns.

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