Sell EURUSD on Fed tightening expectations

In the coming days, the fundamental outlook for EURUSD hinges on three key factors: the Federal Reserve's (Fed) monetary decision, the latest twists in the oil market, as well as critical US GDP and inflation data. For now, the pair is hovering near 1.1400, enjoying a temporary respite from the partial thaw in Middle East tensions. But this calm may not last long. 

Here's what's moving the needle this week:

FOMC meeting & tone. Markets widely expect the Fed to hold rates at 3.50%-3.75%. However, the real fireworks will come from the statement and Kevin Warsh's press conference. Investors are bracing for a hawkish hold—a tone that leaves the door wide open for an interest rate hike in the fall if inflation refuses to play ball. In other words, it's not the decision itself that matters—it's the message. 

US GDP & PCE (a reality check on July 30). This Thursday's doubleheader—Gross Domestic Product for the second quarter (Q2) and core Personal Consumption Expenditures data—could either reinforce the regulator's cautious stance or throw a wrench in the works. Soft growth and cooling inflation would be a one-two punch against the dollar.

Oil & geopolitics. Brent crude sliding below $93 amid signs of de-escalation in Iran has taken the edge off price pressure fears on both sides of the Atlantic. This has given the euro a bit of breathing room.

ECB & its steady hand. The European Central Bank is sitting tight at 2.25%, though officials have been quick to remind markets that a September tightening is still on the table. Their speeches have kept the euro from a freefall. Even without adjusting borrowing costs, the regulator is doing its part to stabilize the single currency. 

What to expect next? Today, EURUSD is likely to stay stuck in a narrow range as traders hold their breath ahead of the Fed meeting. Wednesday, however, could be a different story—volatility is set to spike with the rate decision. If the American central bank refrains from dovish language, the dollar could catch a bid. Thursday's data will then either amplify or soften the blow.

Technically, the damage is already done. The pair has formed a bearish pattern that points to a potential breakdown below current levels, with 1.1000 looking like the next major stop.

The ultimate recommendation is to sell EURUSD. Lock in profits at 1.1000. Place Stop Loss at 1.1780.

Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow you to enter a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.