The recent uptrend in EUR/USD appears to have stalled just short of the January high at 1.0533, breaking the sequence of higher highs and lows seen last week. The pair has slipped to a new weekly low of 1.0440, pulling the Relative Strength Index (RSI) off its highest level since September. This could signal the start of a further decline, especially as attention turns to the next Federal Reserve meeting in March.
Federal Reserve’s Policy Outlook and Impact on EUR/USD
Federal Reserve Governor Christopher Waller recently indicated his preference for maintaining the current policy rate, suggesting that further rate cuts are unlikely in the near term. Speaking at the University of New South Wales Macroeconomic Workshop, Waller emphasized that the economic data does not support a reduction in rates at this time, pointing to ongoing employment growth as evidence of a resilient economy. His comments reinforce the view that the Federal Open Market Committee (FOMC) is not in a rush to ease its restrictive policy stance.
As a result, the prospect of the Fed holding steady on rates may dampen market expectations for an imminent rate cut, putting pressure on EUR/USD and potentially limiting the pair’s ability to sustain its recent rally. EUR/USD may struggle to hold onto the gains made from the monthly low of 1.0211 as FOMC officials continue to temper speculation of a rate reduction.
Technical Outlook: EUR/USD Faces Resistance at Key Levels
The failed attempt to break above the January high of 1.0533 could keep EUR/USD trading within its broader yearly range. The recent pullback has seen the exchange rate come into contact with the 50-day simple moving average (SMA) at 1.0394, which has acted as support. However, the pair’s inability to sustain momentum suggests that a larger correction may be underway, though this could prove temporary if EUR/USD continues to find support near the 50-day SMA.
Conclusion: Mixed Outlook for EUR/USD
As EUR/USD struggles to advance beyond the January high and the Federal Reserve signals caution on rate cuts, the pair’s upward momentum faces significant challenges. Traders should watch for any signs of a deeper pullback, particularly as the market digests upcoming economic data and the Fed’s next policy decisions. The exchange rate’s behavior around key technical levels, including the 50-day SMA, will be critical in determining whether the rally has truly stalled or if a brief consolidation is in play before the next move.
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