Chart of the day - EURUSD (27.07.2023)

FOMC announced a 25 basis point rate hike yesterday, following a pause in hiking at June meeting. Such a decision was widely expected and traders were eager to see whether Fed Char Powell offers some more hints on future moves during the press conference. However, no such hints were offered and Powell was cautious not to provide any forward guidance.

Investors will hear from the European Central Bank today at 1:15 pm BST and the decision is expected to be similar to yesterday's FOMC decision - a 25 bp rate hike and no hints on the future. Just like Powell, ECB President Lagarde is expected to stress that future decisions will be data-dependant. However, there is a feeling in the markets that today's 25 bp rate hike will be the final one in the current ECB hiking cycle. Nevertheless, a clear signal that this is the end of hiking would be very dovish and could trigger volatile moves on the markets, and this is a scenario that central banks try to avoid. Interestingly, even as markets seem to be convinced that ECB will end hiking earlier than Fed, EUR outperformed USD recently and the main currency pair disconnected from bond markets in June.

There is a growing divergence between EURUSD and bond markets. Source: Bloomberg, XTB

EURUSD should be on watch in the early afternoon as there is a number of events scheduled that could move the pair. The most important one is ECB rate decision at 1:15 pm BST, followed by Lagarde's presser at 1:45 pm BST. In between those two investors will be offered flash Q2 GDP reading from the United States that may also trigger moves on EURUSD.\

Taking a look at EURUSD at the H1 interval, we can see that it is recovering from a recent correction. The pair broke above the 38.2% retracement of a recent correction this morning and continue to move higher. A near-term resistance zone to watch can be found in the 1.1150 area, marked with 50% retracement and the 200-hour moving average (purple line).

EURUSD at H1 interval. Source: xStation5