The EUR/USD distanced itself from a falling channel ahead of the Fed policy and rose to a three-week high on Tuesday. The single currency, however, pared some of its gains after data at 10:00 am GMT showed the region's industrial output rose at a lower-than-expected pace in October.

At 11:03 GMT, the euro was worth 1.3492 dollars, off an intra-day high of 1.3495, up nearly 0.78 percent from its previous close of 1.3390. EUR/USD has broken above the 100-day and 200-day SMAs and is holding near the 50-day SMA, which is also its highest since November 23.

The pair is now targeting 1.3626 (R1), the half-way Fibonacci retracement between 1.4280 and 1.2968, before entering the 1.3697 (R2)/1.3784 (R3) region. R2 is also falling in line with the Bollinger upper band while R3 is catching up with the 61.8 percent Fibonacci.

Eurostat said Tuesday that EMU's industrial production rose only 0.7 percent in October, against market expectation of 1.3 percent. On year, the output grew 6.9 percent, below the street number of 7.6.

The December ZEW survey report released at the same time showed a higher-than-expected economic sentiment indicator for Germany but the current situation analyzer showed a disappointing result.

If the pair loses ground, which is not unlikely as the day's New York session has key information like US retail sales and import price index ahead of the Fed rate decision at 7:15 pm GMT, it could fall below 1.3463 (S1) and re-enter the down-channel formed early last month.

Below that, late November low of 1.2968 (S2) is a strong support for the pair for the near-term, which is also suggested by the Bollinger lower band.

Market is now waiting for the Fed policy with many analysts expecting the central bank to announce expansion of its quantitative easing, potentially helping the single currency recover from its recent losses.

EUR/USD had dropped 6.75 percent in November but at its session's high, it was up 3.78 percent so far this month.

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