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EUR/USD: Stabilizes Over 1.1000 as Fed-ECB Policy Divergence to Reduce Ahead
Due to Fed dovishness, EUR/USD has risen beyond 1.1000. A 50 bps ECB rate hike will reduce Fed-ECB policy divergence. The major currency pair crossed the 50% Fibo retracement.
The EUR/USD pair broke above 1.1000 in the early Asian session. As the Fed cut its interest rate boost to 25 basis points (bps) and raised borrowing rates to 4.50-4.75%, the key currency pair rallied. After four consecutive 75 bps rate hikes, Fed chair Jerome Powell lowered the scale to 50 bps in December's policy meeting.
Investors will closely follow the European Central Bank's interest rate announcement (ECB). ECB President Christine Lagarde is expected to raise interest rates by 50 bps to 2.50%, narrowing the Fed-ECB policy gap.
After hitting a nine-month low at 100.64 amid risk appetite, the US Dollar Index (DXY) has pulled back.
EUR/USD has climbed above the 50% or halfway Fibonacci retracement (from January 2021 high at 1.2350 to September 2022 low at 0.9536) at 1.0942 on a weekly timeframe, indicating that longer-term bearish bias has receded. The 10-period Exponential Moving Average (EMA) at 1.0720 is rising strongly, indicating a strong uptrend.
RSI (14) has moved into the bullish zone of 60.00-80.00, indicating strong bullish momentum. The momentum oscillator is not exhibiting bearish divergence or overbought.
The shared currency pair must surpass a fresh nine-month high at 1.1033 to extend the positive trend toward April 1 high at 1.1076 and March 18 high at 1.1119.
A strong break below Jan 26 high at 1.0930 will pull the stock toward January 24 low at 1.0856. If the latter breaks, the asset will fall toward the January 31 low around 1.0800.
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