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EUR/USD: FOMC Day - Technical Analysis and Market Outlook

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The EUR/USD currency pair exhibited strong momentum on Tuesday, rallying to its highest level since early February at 1.0840 before experiencing a slight retracement. Despite this pullback, the pair managed to maintain stability above the key psychological level of 1.0800, signaling a bullish tilt in the near-term technical outlook.

A closer look at the technical indicators reveals an intriguing setup for the EUR/USD pair. Currently trading around the 61.8% Fibonacci retracement level from the last swing low, there's a possibility of a new bullish impulse, particularly during the opening of the US session. This confluence of factors suggests the potential for further upside movement in the pair.

However, today's focus is squarely on the Federal Open Market Committee (FOMC) meeting. According to the CME FedWatch Tool, markets are pricing in a nearly 70% probability that the Fed will maintain the policy rate unchanged in the next two policy meetings. This expectation stems from the fact that the January policy meeting occurred before the release of crucial labor market and inflation data, which prompted doubts about a rate cut in May.

Investors keenly await insights from Fed policymakers later in the day. Any commentary that downplays the significance of recent hot inflation readings and leaves the door open for a potential rate reduction in May could exert downward pressure on the US dollar (USD). Such a scenario aligns with our technical analysis, potentially confirming a pullback in the EUR/USD pair, with a target of 1.08500 identified for take profit.

The interplay between technical analysis and fundamental factors underscores the complexity of currency trading, particularly during pivotal events such as FOMC meetings. Traders must navigate through a maze of data, market sentiment, and geopolitical developments to make informed decisions.

As uncertainty looms over the monetary policy direction of the Federal Reserve, traders should exercise caution and closely monitor price action and key support/resistance levels. Flexibility and adaptability are crucial traits in navigating volatile market conditions, allowing traders to capitalize on opportunities while managing risk effectively.