EUR/USD backslides ahead of Fed rate call

• EUR/USD shed 0.6% on Tuesday as market sentiment pulls back.
• Latest Fed rate call expected to be a hold, investors waiting to see changes in narrative.
• Tariff threats continue to hang over trader risk appetite, keeping Greenback bid.

EUR/USD pared recent gains on Tuesday, shedding six-tenths of one percent and inching back toward the 1.0400 handle as markets gear up for another outing from the Federal Reserve (Fed) on Wednesday. Markets are overwhelmingly expecting a flat rate hold from the Fed in January, but investors will be keeping a close eye on not only Fed Chair Jerome Powell's press conference, but any tweets from US President Donald Trump.

The economic calendar is lacking any meaningful data on the European side for the front half of the week. Fiber traders will have to wait until Thursday's Gross Domestic Product (GDP) updates from both Germany and the pan-EU area for the fourth quarter.

Late Monday, US President Donald Trump swiftly resumed his aggressive tariff agenda, reiterating his intention to impose hefty import fees on a broad spectrum of foreign goods and industries. This latest version of his plan involves vague tariffs on steel, copper, aluminum, various semiconductors, and foreign microprocessors in general, aimed at compelling foreign businesses to relocate their factories to the US.

Persuading these sectors to shift production domestically is a challenging task, as establishing factories in the US is typically costly, and US labor demands significantly higher wages compared to countries that produce industrial goods on a large scale. As a result, import fees are unlikely to influence production decisions significantly; instead, they may lead to inflation and reduced consumer spending.

The Federal Reserve is expected to announce its latest interest rate decision on Wednesday. While no change in the fed funds rate is anticipated this week, traders will closely watch for updates on the ongoing tensions between Fed Chair Jerome Powell and President Trump. The Fed's considerable autonomy limits the White House's influence over interest rates, a situation President Trump has expressed frustration about in the past. Trump's recent claims that he will "demand" lower interest rates are expected to impact Chair Powell's upcoming press conference.

EUR/USD price forecast

The Euro's backslide against the Greenback on Tuesday puts the Fiber in a tenuous technical scenario: a bearish turnaround in EUR/USD bids is forming a technical rejection from the 50-day Exponential Moving Average (EMA) declining into 1.0460. The pair is poised for further losses on a technical basis, unless bidders are able to muscle price action back into the green and on a path toward the 200-day EMA, floating just south of the 1.0700 handle.

EUR/USD daily chart