EUR/USD dips towards 1.1650 with Eurozone inflation, ECB rates on tap

• EUR/USD drifts to three-week lows near 1.1650 as the Fed turns hawkish.
• The Federal Reserve left rates on hold, with some policymakers opposing the "easing bias".
• Eurozone inflation and the ECB's monetary policy decision will guide the pair on Thursday.

The Euro (EUR) extends losses for the third consecutive day against the US Dollar (USD) on Thursday, trading at 1.1663 at the time of writing, down from weekly highs at 1.1755. A hawkish shift in the US Federal Reserve’s (Fed) monetary policy stance and the deadlock in the Middle East conflict are buoying the safe-haven USD, ahead of the Eurozone inflation data and the European Central Bank’s (ECB) monetary policy decision, both due later today.

On Wednesday, the Fed left rates on hold at the 3.50%-3.75% band, as expected, yet with the most divided committee since 1992, as three policymakers argued that the “easing bias” phrase is no longer appropriate given the spike in energy prices.

Higher Treasury yields give a fresh push to the USD

The market has priced out the chance of a Fed rate cut this year, according to the CME FedWatch Tool, and now prices in a nearly 50% chance of a rate hike in June next year. This has given US Treasury yields a fresh boost, providing additional support for the US Dollar.

Beyond that, Fed Chairman Jerome Powell, who ends his term on May 15, affirmed that he will remain at the bank as Governor, due to the legal actions taken against him by US President Donald Trump. Powell will replace Stephen Miran, who was appointed by Trump in 2025 and voted for a rate cut on Wednesday, and is likely to counter pressure from the administration on the next Chair, Kevin Warsh, to ease monetary policy.

In Europe, traders will be attentive to the Eurozone preliminary Gross Domestic Product (GDP) for the first quarter and the Harmonised Index of Consumer Prices (HICP) for April, which is expected to show a sharp acceleration, boosted by higher Oil prices.

The main focus on Thursday, however, will be on the ECB’s monetary policy decision. The bank will most likely leave interest rates on hold, awaiting more clarity on the Middle East conflict, while leaving the door open for a rate hike in June or July.

Technical Analysis: Bears are testing a key support zone

EUR/USD is showing mounting bearish pressure after breaking the neckline of a bearish "Head & Shoulders" (H&S) pattern at 1.1675, and is now testing a cluster of supports above 1.1645, which held bears several times in mid-April.

Technical indicators on the 4-hour chart are going deeper into bearish territory. The Relative Strength Index (RSI) around 34 hints at lingering downside pressure, and the Moving Average Convergence Divergence (MACD) histogram is showing widening red bars.

A clear break of the April 8 intraday low, in the area of 1.1645, would confirm the H&S formation. The pair might find some support at the 1.1630 area, where the 50% Fibonacci support of the March-April rally meets late March and early April highs. The 61.8% Fibonacci retracement is at 1.1583. The H&S's measured target is coincident with the April 6 low near 1.1500.

On the topside, immediate resistance emerges at the previous support zone near 1.1675, followed by Wednesday's high at 1.1720 and the mentioned weekly high at 1.1755.

(The technical analysis of this story was written with the help of an AI tool.)