EUR/USD Forecast: Time to break higher? Fed decision, some covid hope and technical point up

• EUR/USD has been retreating from the highs as investors position ahead of the Federal Reserve. 
• A potentially dovish Fed decision and falling covid cases in the UK point to further gains.
• Wednesday's four-hour chart is showing positive momentum for the pair.

More than a dead-cat bounce – EUR/USD has set higher highs and higher lows for several days, providing hope for the bulls. The world's most popular currency pair also has reasons to rise, which may result in further gains.

All eyes are on the Federal Reserve's decision later in the day. That has been dampening price action and tension will likely confine currencies to narrow ranges until the world's most powerful bank releases its statement. The Fed is unlikely to change its policy – nor hint it is nearing tapering bond-buys, as Fed Chair Jerome Powell said recently that it is "a ways off." 

Rising inflation prompted the bank to open the debate about buying fewer bonds, but there are good reasons to believe it is still transitory and related to the rapid reopening. Moreover, the quick spread of the Delta COVID-19 variant creates high uncertainty that could result in a wait-and-see approach. US authorities now recommend using face masks – even for the vaccinated – under specific conditions. 

There are additional reasons to expect a dovish decision by Powell and co. one that would keep the dollar printing presses at full-speed and weigh on the dollar.

Previews: 

• Federal Reserve Preview: Three reasons why Powell could pause, pummeling the dollar
• Fed Interest Rate Decision Preview: The horns of an inflation dilemma

There are additional reasons to be optimistic and expect a risk-on mood – one that is unfavorable to the safe-haven dollar. After several disappointing data points, Tuesday's data releases were upbeat. The Conference Board's Consumer Confidence beat estimates and Durable Goods Orders also look upbeat when considering upward revisions.

And while US and European coronavirus infections are rising, they are falling in Britain. The UK is ahead in both vaccinations and the prevalence of Delta and it has finally turned a corner, with seven consecutive days of drops. Hospitalizations remain elevated and the full effect of the reopening is still to be seen, but Britain serves as a "leading indicator" to the world. 

Overall, there is room for optimism, and that could result in gains.

EUR/USD Technical Analysis

Euro/dollar is benefiting from upside momentum on the four-hour chart and has surpassed the 50 and 100 Simple Moving Averages, bullish signs that enhance the narrative of an uptrend. 

Resistance awaits at Tuesday's high of 1.1840, followed by 1.1880, a stubborn cap from early in July. Further above, 1.19 awaits. 

Some support is at 1.17790, where the 50 SMA hits the price, followed by 1.1770 and July's low of 1.1750. 

See Analyzing inter-market correlations to see if reflation trade is coming to an end – July 2021