EUR/USD Soft After Hawkish Fed Rhetoric

  • EURUSD
    (${instrument.percentChange}%)

Fed Hawkish Remarks

Fed Governor Ms Brainard made some rather hawkish remarks on Thursday, which led to a US Dollar advance. She said that inflation is "much too high" and getting it down is of "paramount importance", noting that the bank is ready to take "stronger action" if warranted, which was largely interpreted as hint for more aggressive rate hikes. [1]

The Fed's preferred measure of Inflation, the Core Personal Consumption Expenditures climbed to highest level since early 1983 in March, coming in at +5.4% year-over-year last week. The central bank hiked interest rates last month by 25 basis points to combat surging consumer prices and markets currently expect a larger 50 bps move in May, with CME's FedWatch Tool assigning 76.6% probability to such an outcome. [2]

Ms Brainard also commented on the balance sheet, seeing a "rapid pace" reduction which could begin as soon the next meeting in May. The central bank's portfolio has ballooned to nearly $9 trillion as a result of the asset purchases program that ended in March.

Sanction Against Russia & Support to Ukraine

EU Commission President Ms von der Leyen proposed yesterday a fifth package of sanctions against Russia, following the "gruesome pictures from Bucha and other areas from which Russian troops have recently left". The plan consists of six pillars, which include a ban on coal from Russia, but no oil embargo. [3]

Western allies are also ready to provide further support to Ukraine, with the war having entered its 43rd day, as NATO Secretary General Stoltenberg said talked about sending "anti-tank weapons, air-defence systems and other equipment". He also expects "a new very concentrated Russian offensive in Donbas". [4]

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EUR/USD Analysis

These developments are pushing the pair to the fifth straight negative, confirming our pessimistic view. It is now in danger of fresh 2022 lows (1.0805), although fresh catalyst may be requires for that, while 1.0635 seems remote for now.

Despite renewed trouble at the start of the European session, the Relative Strength Index (RSI) is at oversold levels that have not been reached since early March, which had then led to a EUR/USD rebound.

Such a scenario could play out again and the common currency could push towards 1.1000, but we remain cautious around its upside potential, while a break above the EMA200 (1.1080) is need for the downward bias to pause.

Market participants now look forwards to the FOMC minutes for more insight into the Fed officials thinking, a release that could determine the pair's next move.

Nikos Tzabouras

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.

References

1

Retrieved 06 Apr 2022 https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html#

2

Retrieved 06 Apr 2022 https://www.federalreserve.gov/newsevents/speech/brainard20220405a.htm

3

Retrieved 06 Apr 2022 https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_2281

4

Retrieved 29 Sep 2022 https://www.nato.int/cps/en/natohq/opinions_194325.htm

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