EUR/USD Forecast: Euro corrective decline unlikely to deepen

• EUR/USD stabilized at around 1.1000 following a two-day rally.
• Near-term technical outlook highlights overbought conditions for the pair.
• ECB-Fed policy divergence is likely to continue to support EUR/USD.

Following Wednesday’s upsurge, EUR/USD gained more than 1% and touched its highest level since late November above 1.1000. Although the pair’s near-term technical outlook suggests that there could be a downward correction, investors could refrain from betting against a steady rebound in the US Dollar (USD) after the dovish Federal Reserve (Fed) surprise.

The European Central Bank (ECB) left key rates unchanged following the December meeting as anticipated. Although the ECB revised inflation projections lower, it reiterated that future decisions will ensure that policy rates will be set at sufficiently restrictive levels for “as long as necessary.”

In the post-meeting press conference, ECB President Christine Lagarde said that they did not discuss rate cuts at the meeting and added that it wasn’t time to lower their guard since they had more work to be done. Lagarde’s hawkish tone provided a boost to the Euro, allowing EUR/USD to gather bullish momentum.