EUR/USD drops on high US yields as markets eye FOMC decision

• Euro dips as investor focus on upcoming FOMC meeting and interest rate projections.
• Eurozone inflation aligns with expectations, but EUR/USD's movement restrained by anticipation of Fed's policy direction.
• ECB's Centeno highlights the importance of price stability and suggests rate adjustments could prevent recession in the Eurozone.

The Euro drops against the US Dollar at the beginning of the week as investors brace for the Federal Open Market Committee (FOMC) monetary policy decision. Expectations that the ‘dot plots’ might adjust the Federal Reserve’s (Fed) projections of monetary policy put pressure on the EUR/USD, which trades at 1.0872, down 0.14%.

EUR/USD falls ahead of Fed’s decision

The current week will witness three major central bank monetary policy decisions. On Tuesday, the Bank of Japan is expected to raise rates by 10 basis points and end the era of negative interest rates. On Wednesday, the Fed is foreseen to keep policy unchanged, though speculations are mounting that the US central bank would likely adjust their projections on interest rates.

Eurozone (EU) inflation in February, as measured by the Harmonized Index of Consumer Prices (HICP), cooled from 3.3% to 3.1% YoY, as expected. The core HICP edged lower from 2.8% to 2.6% aligned with forecasts. The data barely moved the EUR/USD pair as traders braced for the Fed’s decision in two days.

In the meantime, European Central Bank (ECB) policymaker Mario Centeno said that price stability needs financial stability, adding that reducing the main rate may help avoid a recession in the bloc’s economy.

Across the pond, the US economic schedule revealed that the National Association of Home Builders (NAHB) Market Index improved the most since July 2023, rising by 51, up from 48 in February.

In the meantime, the fixed-income market shows that US bonds remain offered, as US Treasury bond yields push higher across the short and long ends of the curve. That is bolstering the Greenback, according to the US Dollar Index (DXY), which is up 0.17%, at 103.62.

EUR/USD Price Analysis: Technical outlook

The daily chart shows the EUR/USD has finally broken below last Friday’s low of 1.0872, extending its losses below the 1.0870 figure. Nevertheless, buyers could be leaning in the 100-day moving average (DMA) at 1.0860, which, once cleared, could open the door for further downside. The next key dynamic support levels are the 50-DMA at 1.0850 and the 200-DMA at 1.0838. The first key resistance level would be the 1.0900 mark.