EUR/USD Forecast: There is strong support around 1.0800

EUR/USD recorded acceptable gains on Wednesday, reversing two daily declines in a row amidst the weaker US Dollar (USD) following the FOMC gathering on Wednesday.

That said, the Greenback came under renewed and heightened downside pressure following a “double whammy” of a hawkish Bank of Japan (BoJ) meeting and a signal that the Federal Reserve (Fed) might start cutting its interest rates in September. Against that, the USD Index (DXY) briefly breached the 104.00 support and kept gyrating around that zone towards the end of the session on Wall Street.

The offered stance in the Dollar stayed constant after the Fed kept interest rates unchanged, as widely expected. Furthermore, the bank claimed that inflation remained "somewhat" excessive and reaffirmed that it will not decrease rates until it is more certain that inflation is going stably towards 2%. Furthermore, the Fed continues to monitor the risks to both sides of its dual mission.

Adding to the downbeat mood in the Greenback, Powell emphasized the need for greater confidence in controlling inflation, citing Q2 inflation readings as supportive evidence. He noted that the FOMC is moving closer to a potential rate cut, possibly in September. Powell mentioned that if inflation continues to decrease, economic growth remains strong, and the labour market remains stable, a rate cut could be considered.

The policy divergence between the Fed and the ECB is likely to persist, with both expected to cut rates soon. However, the US is anticipated to experience a soft landing, while the Eurozone's recovery is losing momentum, potentially weakening the European currency further in the medium term.

On the euro docket, the uptick in the advanced Inflation Rate in the euro bloc saw the headline CPI rise more than expected by 2.6% YoY in July and the core CPI advance by 2.9% from a year earlier. These prints, despite coming in above consensus, are unlikely to derail the ECB’s intentions to reduce rates in September.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the downside, the next target for EUR/USD is the weekly low of 1.0798 (July 30), followed by the provisional 100-day SMA at 1.0793 and the June low of 1.0666 (June 26), all before the May low of 1.0649 (May 1).

On the upside, the initial obstacle is the July high of 1.0948 (July 17), followed by the March top of 1.0981 (March 8) and the important 1.1000 yardstick.

Looking at the broader picture, the pair's bearish bias should return if it remains below the critical 200-day SMA (1.0822).

So far, the four-hour figure shows some near-term consolidation. Nonetheless, the 55-SMA at 1.0853 provides temporary hurdle, seconded by 1.0948, 1.0981, and finally 1.1000. On the downside, 1.0798 comes first, before 1.0709. The relative strength index (RSI) rebounded to about 48.