EUR/USD Treads Water Ahead of the Fed Minutes

  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

Markets prepare for today's minutes of the Fed's last policy meeting, when it had downshifted to a 25 basis points hike. We already know that two non-voting members (Ms Mester and Mr Bullard) saw a case for a bigger move in that meting [1], [2], so it will be interesting to see how this is reflected in the accounts and if there was more support for this.

Markets went into the new year, not believing that the Fed would raise rates by as much as its projections suggest, but following the blowout jobs report at the start of the month they started to come to grips with that. Persistent hawkish commentary since then, along with higher than expected inflation figures and yesterday's strong preliminary PMIs, support the higher-for-longer narrative.

At the time for writing, CME's Fed WatchTool assigns the highest probability to a terminal rate of 5.5%, which suggest another 75 basis points worth of hikes. [3]

This repricing has boosted the USDOLLAR and has narrowed the policy differential between the US central bank and its European counterpart, to the detriment of EUR/USD. Even so, the ECB has already out-hawked the Fed, looking set to raise rate more this year, compare to its peer.

European policy makers have been very hawkish and in one of the most recent comments, Mr Rehn told BorsenZeitung that rate increases beyond March "seem likely" and assumes that the terminal rate will be reached "in the course of the summer". [4]

EUR/USD loses around 2% this month due the heightened expectations around the Fed's policy path, breaching again today the 23.6% Fibonacci of the rebound from September's multi-year lows. This creates risk for further slide towards the 38.2% level (0.0451), although it is hard to justify further and sustained weakness below the ascending trendline from that low (1.0320-10) based on the monetary policy environment.

Why Trade with FXCM

Commission free with fast, efficient execution.

On the other hand, the common currency shows resilience and the correction is limited so far. As such, it has not lost the ability to reassert its power with a move towards the 1.0800 region, but will need catalyst and 1.1067 is distant.

Nikos Tzabouras

Senior Financial Editorial Writer

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.

References

1

Retrieved 21 Feb 2023 https://www.clevelandfed.org/collections/speeches/2023/sp-20230216-returning-to-price-stability-in-it-to-win-it-sarasota

2

Retrieved 21 Feb 2023 https://www.reuters.com/markets/rates-bonds/feds-mester-says-more-rate-hikes-needed-combat-inflation-2023-02-16/

3

Retrieved 21 Feb 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

4

Retrieved 29 Feb 2024 https://www.boersen-zeitung.de/we-as-the-governing-council-must-avoid-a-shock-therapy-adf420a2-b122-11ed-aa92-d251fc4f892c

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.