The dollar's next move hinges on tonight's Federal Reserve decision, and markets are unusually uncertain about the outcome. Economists still lean toward a hold, with CME FedWatch odds near 68.5% for no change. However, Kevin Warsh's hawkish remarks about having "no tolerance" for inflation, together with increasing internal FOMC support for a rate hike, have lifted hike expectations sharply from just 18% two weeks ago to more than 30% today. Adding to the uncertainty, Warsh has deliberately reduced forward guidance, which means tonight's press conference may provide fewer clues than usual.

The euro has already faced its own policy test. The European Central Bank held rates unchanged at 2.25% last Thursday, as expected, while Christine Lagarde reaffirmed the 2% inflation target and noted that energy-driven inflation risks linked to the Middle East conflict have not yet fully unfolded. Eurozone inflation eased to 2.8% in June, but sticky services inflation, still around 3.5% to 4%, leaves the door only cautiously open for a move in either direction at the September meeting. That leaves the euro trading with one policy decision already digested and another still to come, a setup that helps explain why the pair has stayed range-bound despite the recent volatility in rate expectations.

With EUR/USD trading near 1.1408, tonight's Fed decision, rather than the ECB's earlier move, is likely to determine the pair's next major direction.

EUR/USD Technical Analysis

As the EUR/USD chart shows, the pair has been consolidating in a well-defined range since late June, squeezed between an ascending trendline and a descending trendline that are converging around the current price near 1.1400. The 200-period EMA continues to slope lower above price, reinforcing a cautious technical backdrop ahead of the Fed decision. In other words, the market is approaching a point where policy headlines and chart structure are aligned around the same narrow area, making the current band more important than the recent day-to-day swings.

Bullish Scenario

If the dollar weakens on a dovish Fed outcome, EUR/USD would need to break above the converging trendlines and reclaim the 0.382 Fibonacci retracement near 1.1420, with the 200-period EMA just above acting as the next key hurdle. A confirmed break above that average could open the way toward the 0.5 and 0.618 retracements near 1.1480 to 1.1500, where stronger resistance has limited rallies since late June.

Bearish Scenario

By contrast, a hawkish surprise, or even a rate hike, could push the euro sharply lower and break both the ascending trendline and the psychological 1.1360 support level. A confirmed move below that area would expose the 1.1320 zone, the 0.0 Fibonacci level marking the start of the entire recovery move, with additional downside risk toward fresh multi-week lows if selling pressure accelerates.

With price compressed at the intersection of both trendlines and the Fed decision only hours away, EUR/USD appears set for a decisive move.