Euro looks to extend uptrend as Fed dust settles

• EUR/USD gains traction and trades above 1.1150 on Thursday.
• US dollar remains under selling pressure following key Fed event.
• Wall Street’s main indexes remain on track to open decisively.

Following Wednesday’s highly volatile action, EUR/USD gained bullish momentum early Thursday and is trading in positive territory above 1.1150. The US economic calendar will feature mid-level macroeconomic data, but risk perception could drive the pair’s action.

The Federal Reserve (Fed) announced on Wednesday that it cut its policy rate by 50 basis points (bps) to a range of 4.75%-5%. Markets had been forecasting the Fed to cut the policy rate by 25 bps, but there were growing expectations for a 50 bps cut. However, the immediate market reaction triggered a sell-off in the US dollar (USD) and fueled a rally in EUR/USD.

Meanwhile, the revised Summary of Economic Projections (SEP), the so-called dot-plot, showed that policy makers are forecasting two more rate cuts of 25 bps in the last two meetings of the year. In the press conference after the meeting, Chairman Jerome Powell refrained from committing to another big rate cut, adding that he could reduce the pace of cuts if the economy remains strong.

Although the USD was able to stage a rebound following the Fed, risk flows began to dominate financial markets early Thursday, preventing the currency from sustaining. At press time, U.S. stock index futures were up between 1% and 1.75%. A bullish open, followed by a risk-on increase, in the main Wall Street indexes could further hurt the USD and open the door for an extended EUR/USD rally.

In the first American session, the US Labor Department will release weekly data on initial jobless claims.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rose slightly above 70, suggesting that the EUR/USD uptrend remains intact, with the possibility of a near-term technical correction.

On the upside, 1.1200 (static level, uptrend endpoint) lines up as first resistance ahead of 1.1275 (July 18, 2023 high) and 1.1300 (round level). Looking south, interim support could be seen at 1.1130 (20-period SMA) before 1.1100 (23.6% Fibonacci retracement) and 1.1080 (100-period SMA).