EUR/USD: How to Trade the Pair With Fed Decision Imminent Tomorrow

Yahoo

17-06-2025

Market reactions remain muted despite Middle East tensions, with volatility limited outside of oil.
Focus shifts to Fed as rate cut expectations hinge on data and tariff war impact.
EUR/USD eyes a breakout above 1.16, supported by dovish Fed signals and weakening US outlook.
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The sharp rise in tensions between Israel and Iran was expected to create massive turmoil in global financial markets. But apart from oil, both stock and currency markets have shown only limited volatility.
If Iran does not go as far as closing the Strait of Hormuz, investors will likely turn their attention to this week's Fed meeting. The general expectation is that interest rates will remain unchanged, so markets will look for any signals about what the Fed might do in the coming months.
Meanwhile, the EUR/USD pair is still moving upward. If the Fed takes a more dovish tone on Wednesday, the euro could rise past $1.16 and hold above that level.
Based on current market expectations, the Federal Reserve is likely to make its next interest rate cut in September. This is later than what was expected in the first quarter. The delay is mainly due to uncertainty caused by the growing trade tensions, as the US has effectively started a broad tariff war.
However, some key economic indicators suggest that the Fed could ease rates sooner. One such sign is the recent GDP data, which showed a quarterly decline for the first time since November 2022.
If upcoming data also shows a decline, the Fed will find it hard to ignore the negative trend.
As for inflation, the current range of 2–2.5% does not rule out the possibility of rate cuts—especially since inflation has come in below expectations for four straight months.
This suggests that if not for the ongoing tariff war, interest rates in the US would likely be lower. As a result, any news about a possible trade deal—especially with China or the EU—could put downward pressure on the US dollar.
At the same time, the Fed is also watching the labor market closely. As long as job data remains strong and does not show a sharp decline, the Fed has little reason to rush into further rate cuts.
Meanwhile, in the eurozone, the cycle of monetary easing is still in progress. However, early signs suggest that this cycle may be nearing its end. This is reflected in recent comments from ECB President Christine Lagarde and concerns that inflation could rise again if the EU and the US fail to reach a satisfactory trade agreement.
In recent days, buyers have been pushing against the resistance level around 1.16. So far, sellers have managed to hold the line, but if the upward pressure continues, a breakout above this level seems likely given the current macroeconomic conditions.
If the 1.16 resistance is broken, it could open the path toward much higher levels, with a technical target potentially above 1.23. However, reaching that level would depend on key factors that could weaken the US dollar, such as progress on trade deals or signs of a softer Fed stance.
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