Market participants brace for the monetary policy decision by the US Fed (Wednesday) and the European Central Bank (Thursday), from a busy economic calendar, which also includes the US Jobs Report.
The ECB had out-hawked its US counterpart in December, since it pointed to at least one more 0.5% hike ahead, with markets onboard, despite persistent lack of clarity around the peak. Expectations are more tame around the Fed, as CME's FedWatch Tool prices-in a smaller 25 basis points hike tomorrow.
However, investors appear to be wary of any potential hawkish signals from the US central bank, which expects further tightening ahead and a median terminal rate of 5.1% , against lower market expectation and rate cuts towards the end of 2023.
EUR/USD is on the back foot after the rejection of 50% Fibonacci of the 2021 high/2022 low drop, which creates scope for a test of the EMA200. Daily close below would bring the January lows in the spotlight, but the downside appears to be well-protected.
Despite the downbeat mood, the policy differential is supportive and above the EMA200 bulls are at the driver's seat. As such, they can push for higher highs, although sustained strength past 1.1067 will depend on the outcome of the ECB and Fed meetings.
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.
Retrieved 31 Jan 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Retrieved 25 Feb 2024 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf