Euro trades with caution against US Dollar ahead of Fed’s policy meeting

The Euro (EUR) traded cautiously against the US Dollar (USD) in the European trading session on Wednesday, ahead of the Federal Reserve's policy meeting scheduled for that evening. The odds of the Fed raising interest rates by 25 basis points (bps) to 3.75%-4.00% at the meeting were reported at 92.5% by the CME FedWatch tool, suggesting the Fed was about to break its five-meeting hold and initiate the monetary tightening cycle.

The Fed's statement and Chair Kevin Warsh's remarks on inflation and the economic outlook would heavily influence market reaction. Investors would also closely monitor the Fed's dot plot, which projected where policymakers anticipated interest rates would go in the near term. There was a nearly 79% chance that the Fed would raise interest rates at least twice by the end of the year, according to the tool.

Meanwhile, in the Eurozone, ECB officials had indicated that inflationary pressures might persist, necessitating further rate hikes this year. The ECB had already increased its policy rates by 25 bps the previous week. The EUR/USD pair traded at 1.1532, showing a bearish short-term outlook as it remained below the 20-period exponential moving average (EMA) at 1.1589.

The pair had retreated from recent highs, with the Relative Strength Index (14) hovering around 40, indicating ongoing downside pressure rather than oversold conditions. The 20 EMA at 1.1589 represented the primary resistance for bulls to overcome in order to signal a more significant rebound. Conversely, the psychological level of 1.1500 stood as the crucial support level.