EUR/USD approaches 1.1067 pivot ahead of Fed and ECB decisions

US dollar

The Federal Reserve is largely anticipated to hold rates steady. As no fresh forecasts or dot plot are due, attention will centre on any shifts in Fed Chair Warsh's remarks or the statement's wording.

Even though September's higher inflation numbers support more tightening, senior Fed officials have shown limited haste to implement consecutive rate increases in October. The baseline scenario remains a hawkish hold, with the discussion focused on when and how much to tighten further, not whether to do so.

Fed Chair Warsh is predicted to repeat that monetary policy is not tight enough and that more tightening is justified. He is also expected to stress the commitment to price stability while warning against overreaction to single data points.

Investors have already priced in an 80% probability of a December rate increase, shifting attention toward the 2027 outlook. About two additional rate hikes are anticipated next year, with the first completely expected in April.

An unexpected rate increase would spark significant risk aversion. The US dollar and Treasury yields could rise initially, but the move is likely to be short-lived as worries about growth mount along with declining equity markets.

A broadly neutral decision that does not hint at an imminent hike might be seen as dovish, leading to a US dollar correction. The same response is expected, albeit smaller, if the Fed simply meets expectations of a hawkish hold without surprises.

Euro

The European Central Bank is also widely predicted to hold interest rates steady, sticking to its data-driven, meeting-by-meeting stance. September inflation rose to 3.8%, fuelled by energy costs, while core price growth saw milder rises.

Higher energy prices and the possibility of second-round inflation effects still pose hawkish risks, but slowing growth and tighter credit conditions call for prudence. Markets will watch for hints on further tightening, with a December rate hike probability near 68%.

France's situation is expected to feature prominently in the press conference. Traders will seek signals on whether widening sovereign bond yields and fiscal doubts could lead to a more accommodative ECB position or possible use of the Transmission Protection Instrument (TPI). A hawkish outcome is improbable given current conditions.

The next major event for the euro is likely the vote on France's 2027 state budget, set for November 3. That vote covers the revenue part of the budget. The full budget vote is scheduled for November 17.

This vote is crucial as a gauge of the government's capacity to achieve fiscal consolidation. A clean passage would provide relief and potentially support the euro, whereas a rejection or significant concessions that undermine the deficit-cutting plan could weigh on French bonds and the euro.

EUR/USD daily technical view

EUR/USD is nearing a crucial swing level near 1.1067. Should the price reach that area, buyers are expected to enter with a defined risk below, aiming for a correction to the downward trendline around 1.15. Sellers, meanwhile, will target a breakdown to increase bearish positions toward the 1.08 level.

EUR/USD 4-hour technical view

On the 4-hour timeframe, a downward trendline marks the bearish momentum. In the event of a pullback, sellers are likely to use the trendline as resistance with a defined risk above, continuing to push toward new lows. Buyers will seek a breakout above the trendline to increase bullish bets and target new highs.

EUR/USD 1-hour technical view

On the hourly chart, sellers have a favourable risk-reward setup around the trendline, while buyers will wait for the price to reach the key swing level or for a break above the trendline.

Upcoming catalysts

The FOMC rate decision is due today. Tomorrow brings the ECB rate decision, along with US GDP, PCE, and Jobless Claims figures. Friday concludes the week with Eurozone GDP and the US Employment Cost Index.