The European Central bank had announced a detailed rate hike path last Thursday, to begin in July with 25 basis points and continue with potentially larger moves in September and beyond, but the Eurodollar had ended the day lower.
That may have constituted an important hawkish pivot, but the ECB it is still behind its major counterparts in policy normalization. The US Fed has laid out a well-telegraphed plan to deliver 50 basis point rate increases today an in July. Back in May, Mr Powell had taken off the table larger 75 basis point moves, as "not something the Committee is actively considering".
However, Friday's new surge in Inflation to 8.6% y/y in May and the highest level since December 1981, caused an aggressive repricing in market bets for the Fed's next rate moves. CME's FedWatch Tool now projects larger 75 basis point hikes today and in July, with 98.1% and 90.6% respective probabilities at the time of writing. 
We have also seen high profile investors calling for aggressive action from the Fed, such as Mr Bill Ackman who said that "market confidence can be restored" with 75 bps hikes today and next month, before adding that "100 bps tomorrow, in July and thereafter would be better". 
The inflation surge and the ensuing calls for aggressive action to tame it, definitely put pressure on the Fed to break from its well-telegraphed intentions, but there is also the risk of looking like it is in panic-mode, if it follows the will of the markets.
These developments set a tricky backdrop and create risk for increased volatility from today's Fed policy announcement, warranting caution. Markets will have a lot to unpack, since apart from the rate decision, statement and press conference, we also expect the updated staff projection and the dot-plot with officials' view on the rate path.
In another complication, the European Central Bank will hold an unscheduled meeting today to discuss markets conditions, as reported by Reuters earlier, in a backdrop of bond market rout. 
EUR/USD jumped on the news, but the outlook has not changed much and the next leg of the move will be determined by today's Fed outcome, which has the potential to produce outsized moves.
From a technical prospective, recent rejection of the 38.2% Fibonacci of the 2022 High/Low drop has created risk for a test of the 2017 multiyear-low (1.0339) and would likely lead to talk of parity, although this has a high degree of difficulty.
On the other hand, EUR/USD managed to contain its three-day decline on Tuesday and reacted positively on the news of the unscheduled ECB meeting, although we struggle to see how an alarmed ECB can be a source of strength.
The upside looks unhospitable, since the EMA200 and the thick daily Ichimoku Cloud (from around 1.0600 and above) will require a strong catalyst to give way and the policy differential remains unfavorable.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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