EUR/USD breaks through a key support zone as the greenback keeps running on hawkish Fed
FUNDAMENTAL OVERVIEW
USD:
The US dollar continues to be supported following the hawkish Fed dot plot last week as the central bank’s tightening bias led to a hawkish repricing in interest rate expectations.
As a reminder, the Fed delivered a hawkish surprise by projecting a rate hike this year (the consensus was for no cuts or hikes). The market increased rate hike bets with now 38 bps of tightening priced in by year-end. There's a 32% chance of a hike already in July and 68% probability of a move in September.
The economic data and financial markets will now guide the Fed as Warsh stated that “financial markets perform best when they react to incoming data and are less efficient when they have to ask how the Federal Reserve will react to the incoming data”. He added that “financial markets are the most important source of information to guide the central bank”.
Trump also posted on Truth Social and, unlike his usual stance under Fed Chair Powell, did not object to the Fed’s decision. In fact, he said that “rate hikes could happen,” which sounds like a green light for Warsh and the Fed to do whatever they deem necessary.
The signal is that the Fed is finally looking to deliver on its price stability mandate and bring inflation back to the 2% target that it’s been missing since 2021. If the data says they need to hike, they will. This should keep supporting the greenback until the next set of economic data.
EUR:
On the EUR side, the ECB is maintaining the tightening bias, but all the rate hikes have been already priced in a long time ago. The central bank is now taking a pause at least until September to see how the economic data evolves over the summer. The market is pricing in 28 bps of tightening by year-end with the next hike coming in September at the earliest.
The Eurozone Flash PMIs yesterday showed unsurprisingly the rate of inflation easing to the slowest pace since February, just before the US-Iran conflict began. While economic activity remains subdued, the downward pressure eased and we might see more improvement in the next months. If the ECB continues to hike, that could weigh on the economy further.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD broke below a key support zone around the 1.14 handle opening the door for a drop towards the 1.10 handle next. If we get some soft US data in the next weeks, we can expect a pullback into the downward trendline. If the price gets there, we can expect the sellers to lean on the trendline with a defined risk above it to keep targeting new lows. The buyers, on the other hand, will look for a break to extend the rally into the 1.18 handle next.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, there’s not much we can glean from this timeframe, so we need to zoom in to see some more details.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a minor downward trendline defining the bearish momentum. If we get a pullback, we can expect the sellers to lean on the trendline with a defined risk above it to keep pushing into new lows. The buyers, on the other hand, will look for a break to extend the pullback into the 1.1520 level next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow, we get the US Jobless Claims data and the US PCE report. On Friday, we conclude the week with the final University of Michigan consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
FX初心者には必須 無料のうちにGET！
