Traders are getting cautious ahead of the two-day Federal Reserve meeting that concludes on Wednesday
The euro has been climbing higher for the fifth consecutive day on Tuesday. As of writing, EURUSD was changing hands around the intraday highs just below the 1.19 handle. Despite widespread weakness in USD demand amid positive risk sentiment, the common currency refrains from a decisive challenge of this immediate barrier.
Furthermore, strong ZEW German data did little to push the pair higher. According to the report, the economic sentiment index arrived at 77.4 in September versus 69.8 expected while the current situation index improved to -66.2 from 81.3 previously. Despite the upbeat figures, the euro remained below 1.19 following the release, suggesting traders are getting cautious ahead of the two-day Federal Reserve meeting that concludes on Wednesday.
Still, the pair is expected to extend its rebound from last week’s lows registered around 1.1750. On the positive side, the greenback stays on the defensive and could suffer extra losses if the Fed disappoints USD bulls with its dovish rhetoric. On the other hand, should the central bank express a less pessimistic tone than expected, the US currency will likely jump across the board. In other words, there is heightened uncertainty ahead of this key event that could drive EURUSD in either direction.
In a wider picture, the euro remains close to more than two-year highs registered around 1.2 on September 1. The further ascent in the pair depends on risk sentiment in the global financial markets in the context of incoming economic data, geopolitical developments (US-China relations in focus), oil market dynamics, political landscape (US elections looming), the situation surrounding the COVID-19 pandemic, and global central banks’ policy.
In the short term, all eyes are on the 1.19 handle as a break above this hurdle on a daily closing basis would be a confirmation of the latest breakout. In this scenario, EURUSD will retarget the 1.20 figure. On the downside, the immediate support arrives at 1.1850.