Euro Rebound Tested, Traders Await FED Meeting Next Week for Signs of USD Direction

The Euro USD positive sentiment is being put to the test after investors' hopes of a dovish tilt from Central Banks fade.

The Euro has retraced from a 6-week hit hit on Thursday and has pared its first monthly advance since May, although it still trades well above the level of 0.9536 hit last month, its weakest since 2002.

All eyes are now on the currency's trajectory and whether or not the US Federal Reserve adopts a hawkish or dovish stance when it meets next week. A hawkish stance would bolster the greenback. According to Bank of America Corp. strategists, its too early for a Fed pivot and the central bank remains steadfast on hiking interest rates.

After Thursday's retreat, we remain rather cautious on the short-term on the euro, mostly because the US dollar may see some further strengthening and global risk appetite.

Given the high volatility, it's difficult to pinpoint whether it's a long or short position and we are staying away from this trade until after the Fed decision next week. Other market traders are saying that a retest of the September lows on EUR/USD would not be a surprise.