EUR/USD off highs, still above 1.1200 ahead of FOMC

The single currency has given away some its earlier gains vs. the greenback, now sending EUR/USD back to the 1.1215/10 band.

EUR/USD cautious ahead of Fed decision

After two consecutive daily advances, spot is going back and forth between gains and losses today, although it manages quite well to keep the trade above the key 1.1200 handle for the time being.

However, the current resilience around the pair will surely be put to the test in light of today’s key releases in the US docket. In fact, the buck will take centre stage later in the session as inflation figures measured by the CPI are due followed by May’s retail sales and the FOMC meeting.

It is worth mentioning that according to CME Group’s FedWatch tool, the probability of the Fed tightening further its monetary conditions today stay just below 100% based on Fed Funds futures prices.

Barring any surprise from the Committee today, investors’ focus of attention should shift to the Fed’s balance sheet and the likely timing for its reduction as well as the ability of the Fed to hike a third time later in the year.

EUR’s reluctance to move south of 1.12 finds sustain in the futures markets, where traders kept adding contracts to the open interest positions so far this week. In the longer run, however, EUR appears supported by rising open interest in the September futures. For now, the pair’s constructive outlook stays unchanged while above the short-term support line, currently at 1.1146, although the daily bearish divergence in the RSI begs caution.

EUR/USD levels to watch

At the moment, the pair is up 0.03% at 1.1213 and a break above 1.1240 (high Jun.9) would target 1.1284 (2017 high Jun.5) en route to 1.1300 (high Nov.9). On the flip side, the immediate support emerges at 1.1165 (low Jun.9) followed by 1.1108 (low May 30) and finally 1.1073 (76.4% Fibo of 1.1300-1.0339).