EUR/USD rises as dollar weakens ahead of the Fed

• EUR/USD is reversing Tuesday's losses on broad-based US dollar weakness.
• Risk-on in Asia weakened the haven demand for the dollar. 
• Markets likely to be cautious ahead of Wednesday's Fed rate decision.

Broad-based US dollar weakness seen at press time is keeping the EUR/USD above key support at 1.0809 and saving the day for the single currency bulls ahead of the all-important Federal Reserve (Fed) rate decision. 

Dollar offered

Dollar index's (DXY) bounce from the 13-day low of 99.45 reached during Tuesday's American trading hours ran out of steam near 99.90 early Wednesday, as the S&P 500 futures and Asian stocks markets rose, weakening the haven demand for the greenback. 

The US dollar fell to multi-week lows against the Japanese yen and suffered notable losses against the growth-linked currencies like the Aussie dollar and the New Zealand dollar. While the exact reason for renewed risk-on is not clear, some observers are citing an absence of fresh bad news on the coronavirus front or from the oil markets as the reason for the uptick in the risk assets. 

The broad-based dollar weakness helped EUR/USD avoid a break below 1.0809 in Asia. That would have reinforced or confirmed the bearish view put forward by Tuesday's bearish hammer candle. The single currency was on the offer on Tuesday due to rating agency Fitch's decision to downgrade Italy. 

At press time, the spot is trading at 1.0848, representing a 0.27% gain on the day and the dollar index is hovering near 95.68; down 0.28% on the day. While the pair is reporting gains, it is not out of the woods yet, as the resistance of 1.0888 (the high of Tuesday's bearish hammer) is still intact. 

Focus on Fed

The Fed is expected to lift interest rates that influence its fed funds target in a technical move and dash hopes for negative rates. The central bank cut rates to zero in the first quarter and launched an open-ended asset purchase program to contain the economic fallout from the coronavirus outbreak. 

The US government, too, has unveiled an unprecedented fiscal stimulus program to help the economy absorb the shock from the virus outbreak. 

U.S. advance first-quarter gross domestic product (GDP), also due Wednesday, is expected to post a 4.0% contraction following a 2.1% rise in the fourth quarter of 2017. A White House official on Tuesday warned of negative shocks in economic data ahead, reviving fears of a potential 30-40% annualized drop in the second-quarter GDP and an unemployment rate of as much as 20%, according to Reuters News. 

Technical levels