- EUR/USD settles within a 1.0345–1.0461 range, offering fresh setups.
- Fed and ECB rate decisions unlikely to deliver policy surprises next week
- Momentum indicators offer mild bullish bias, but caution is warranted in headline-driven markets
Summary
Amid speculation over US trade policy and potential signals from the Federal Reserve and European Central Bank, EUR/USD is providing a rare sense of clarity right now. The pair continues to respect established technical levels, providing a useful blueprint for navigating these headline-driven markets. With next week’s Fed and ECB meetings unlikely to deliver major surprises, this adherence to known levels could help traders cut through the noise and focus on actionable opportunities.
Big Week, Minimal Fireworks?
While next week appears pivotal on paper with both the Fed and ECB meetings, significant volatility seems unlikely unless either delivers a monumental policy surprise.
The Fed is almost certain to keep rates steady at 4.25–4.50%, as reflected in OIS markets which put the probability of another 25bps cut at just 1.2%.
Source: Bloomberg
At the polar end of expectations, markets are nearly fully priced for the ECB to deliver another 25bp cut, the fifth of the easing cycle.
Source: Bloomberg
Like the actual decisions, there is unlikely to be any significant deviation regarding the interest rate outlook. The Fed is likely to signal continued caution in removing policy restrictions while ECB policymakers continue to guide towards a return to neutral levels by the end of the year, which is thought to be around 2%.
Markets are priced for both outcomes, and with heightened uncertainty regarding the outlook for international trade given the Trump Administration’s threats to impose tariffs on Europe, China, Canada and Mexico from February, it limits the risk of policymakers deviating too far from what’s been said previously.
As traders, we can only hope these events won’t be complete non-events, but that’s a distinct possibility. If so, rate differentials may take a backseat in the short-to-medium term, leaving other drivers to dictate direction. Trump’s social media feed is one candidate, with technicals another.
EUR/USD Settles Into Established Range
Source: TradingView
EUR/USD broke out of a falling wedge on Monday, sparked by relief over the absence of immediate tariff announcements from the Trump Administration. It has since settled into a sideways range, with bids at 1.0345 and offers around 1.0461. That’s the initial range for traders to focus on, opening up potential setups to play it.
Momentum indicators like RSI (14) and MACD are trending higher, flashing bullish signals favor buying dips or bullish breaks. However, in such a headline-driven environment, it might be wise to treat these signals with a degree of caution near-term.