just now
- Cooling U.S. inflation has revived bets for a possible Fed rate cut as early as September.
- The Fed’s rate hold is priced in, but all eyes are on forward guidance and the dot plot.
- EUR/USD hinges on the 1.14890 level, hold it for a rebound, break it for deeper downside.
Cooling Inflation Aligns with Fed’s Goals — But What’s Next?
With last week’s CPI print coming in cooler than expected, inflation is gradually aligning with the Federal Reserve’s long-term targets.
This has reignited speculation around possible rate cuts later this year, with markets now pricing in a higher probability of a September cut. Depending on upcoming data, we could see one rate cut in 2025 or even two, as initially projected earlier this year.
Fed Expected to Hold Steady
Federal Reserve holding rates later today is already priced in, expecting a dovish rate policy. However, the real impact lies in the forward guidance and dot plot. While the hold was priced in, any shift in tone, whether dovish or hawkish, can ripple across markets.
What This Means for the Dollar and EUR
Previous Analysis on Dollar: Dollar Struggles Near Three-Year Lows Ahead of FOMC: What It Means for the Majors
Current Dollar Price Action
The dollar (DXY) sits at a critical point, with inflation cooling and the Fed showing restraint. If the Fed signals patience, it could cap further dollar strength, giving EUR/USD room to recover. But if the Fed leans hawkish, especially with stronger inflation or labor data, USD could reassert its dominance.
Technical Outlook
EUR/USD: Euro pushes lower as dollar higher
Before
After
Based on the scenario I have plotted yesterday, All Eyes on the Fed: EUR/USD Technical Setup Before the Break, bearish setup has now played out, as price broke below the prior structure and the Fair Value Gaps failed to hold, flipping into resistance. With the downside now in motion, all eyes turn to the Federal Reserve’s rate decision. The key level to watch is 1.14890—a bounce here could trigger a short-term recovery, but a clean break below it opens the door for further downside continuation.
EUR/USD Bullish Case: Bounce from 1.14890, Reclaim of Structure
If the Fed takes a dovish tone or signals a possible September rate cut, EUR/USD may bounce off 1.14890 and start forming a bullish leg back toward previous imbalance zones.
- Price holds and confirms demand at 1.14890
- Breakout of the 4-hour FVG at 1.15087 - 1.15479
- Break above short-term lower highs with bullish engulfing or breaker structure
- Fed guides toward easing or confirms inflation progress
Targets:
- 1.15300 short-term resistance
- Potential retest of 1.15800
- Extended upside to 1.16314
Bearish Case: Retest of FVG at , Rejection from Resistance
If the Fed delivers a hawkish hold, reiterates inflation concerns, or signals no cut in 2025, EUR/USD may bounce slightly to fill inefficiencies before continuing lower.
- Price retraces back to the FVG or 1.153 - 1.156 zone but fails to reclaim
- 4-Hour FVG holds at 1.15087 - 1.15479
- Break and close below 1.14890
- Momentum follow-through post-Fed statement
Targets:
- Break below 1.14890 opens space toward 1.14200 - 1.13900
- Deeper liquidity resting near 1.13500 and below
Key Level to Watch: 1.14890
This level acts as the short-term line in the sand:
- Hold = potential recovery
- Break = further sell-off
With the Fed rate decision imminent, volatility is expected. This level may act as the springboard or breakdown point depending on how market participants interpret the Fed’s tone and projections.
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