O euro lost strength against dollar , after reaching its highest level in more than three months at 1.0966, and returned to testing the 1.09 range at night, after the release of the minutes of the Federal Reserve's last monetary policy meeting, which proved to be more favorable to monetary tightening than expected, which ended up contributing to the appreciation of the American currency.
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According to the document, Fed officials signaled that they may raise interest rates again if data indicates that inflation is not converging towards the central bank's 2% target.
“Participants noted that a further adjustment of monetary policy would be appropriate if information indicated that progress towards the inflation target was insufficient,” says the text.
Furthermore, the minutes highlight that inflation “remained well above” the Fed's target, which should require the central bank to “maintain a restrictive stance for some time”, until inflation stabilizes “in a sustainable manner”.
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Following these statements, there was a slight increase in US interest rate expectations. a 5% probability that the American central bank will raise its rates next month, against 0% the day before, which justifies the appreciation of the dollar against the euro.
However, the currency pair's decline was contained, in part because European Central Bank (ECB) President Christine Lagarde also struck a cautious tone in a speech.
She warned that this is “not the time to celebrate” inflation, explaining that the central bank must remain focused on returning inflation to target and not rush ahead based on short-term developments.
As for events that could influence EUR/USD this Wednesday, traders will be paying close attention to durable goods orders and unemployment insurance claims in the US, as well as the consumer confidence index from the University of Michigan.
Technical Levels to Watch for EUR/USD
From a technical perspective, the currency pair's pullback on Wednesday is not enough to invalidate the underlying uptrend.
However, a break below the immediate support at 1.09 would be a bearish signal, which could herald a return to support at 1.0830, or even 1.08, where the 200-day moving average currently sits.
On the upside, yesterday's top at 1.0966 is the first likely hurdle, after which the forex pair is expected to quickly head towards the key level of 1.10.
