Despite dismal macroeconomic data released in the UK on Friday, both the pound sterling and the single European currency extended their steady rally on Monday. Most investors are anticipating that the Federal Reserve will scale down the pace of monetary tightening in the near future. Nevertheless, the Bank of England and the ECB have more convincing reasons to moderate the pace of rate hikes. The thing is that some Fed policymakers have dropped hints that the Federal Reserve is poised to soften its policy while the European regulator is keeping silent. The fundamental picture mirrored in the macroeconomic data tells the opposite. The market will gradually realize that the US dollar’s excessive weakness is unjustified. Thus, the upward correction will follow. Analysts are trying to puzzle out when exactly it will happen.
Perhaps investors will not find any clues until the policy meeting of the central banks. So, they have to wait for at least a week. The ECB is holding the nearest policy meeting on February 2. The Federal Reserve’s meeting is scheduled for January 31. Until then, the market will not be able to revise its sentiment and the US dollar is likely to lose more ground.What can we see on technical charts today? The euro/dollar pair was locked within the trading range between 1.0770 and 1.0880 for the whole of last week. The price has broken the upper border today. It indicates the overall bullish sentiment among traders. This medium-term trend is still valid since the fall of 2022. If the instrument s ettles above 1.0900, traders will increase long positions with the target towards the landmark level of 1.1000. This move will reinforce the bullish sentiment on the euro which will confirm the medium-term interest in the market. The alternative scenario will come into play in case the price retreats below 1.0850. In this case, the currency pair might again get stuck in the corridor between 1.0770 and 1.0880. Speaking about the pound sterling, the pound/dollar pair hit a local high of December last week. Following this price action, traders cut on their long positions. As a result, the instrument retraced to the previously passed level of 1.2300. The market sentiment remains bullish because the price failed to settle below 1.2300.
In the early European session, the price printed a higher high. This proves the dominating bullish sentiment. If the pound/dollar pair settles above 1.2450 at least in the 4-hour timeframe, the instrument will be able to continue the uptrend which has been underway since October 2022. Until then, the currency pair is facing the risk of getting trapped in the range between 1.2300 and 1.2450.

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00:00 INTRO
00:13 US FED FUNDS RATE
01:05 QUOTES
01:35 EUR | USD
02:40 GBP | USD