Dollar on the Ropes as the Fed Decides to Pause Rate Hikes
EUR/USD Approaches Stiff Resistance. ECB Still Wants More.
Last week was eventful in terms of central bank decisions. The Federal Reserve decided to keep interest rates unchanged on Wednesday but provided hints that further rate hikes could be implemented to address inflation concerns.
One day later, the European Central Bank raised interest rates by 25 basis points and indicated that more increases could be on the horizon. As the policies of the two central banks start to diverge, the effects can be seen on the charts, with the Euro gaining ground against the greenback.
According to CME’s FedWatch tool, market expectations currently indicate a 72% probability of a 25 basis points rate hike by the Federal Reserve next month. After that, it is expected that the rate hikes will come to a halt.
Key Data for the Week Ahead
U.S. markets are closed today in observance of Juneteenth, which means that no economic indicators will be released and volatility may be irregular.
Wednesday at 2:00 pm GMT, Fed Chair Powell will testify before the House Financial Services Committee about the Semi-Annual Monetary Policy Report. Thursday at the same time, he will testify on the same topic but this time before the Senate Banking Committee. Both testimonies are likely to bring additional volatility to US Dollar pairs and will possibly offer new hints about the rate path.
Also Thursday but earlier in the day, at 11:00 pm GMT, the Bank of England will announce the interest rate, which is expected to be lifted from the current 4.50% to 4.75%.
Friday will be a PMI-heavy day, with several of these reports coming out throughout the day. The European side starts early at 7:15 am GMT with the French Manufacturing and Services PMIs, followed by their German homologues at 7:30 am GMT. At 1:45 pm GMT, the U.S. Manufacturing and Services PMIs will come out, concluding the economic week.
Technical Outlook – EUR/USD
Last week’s price action took EUR/USD above the 50-day Moving Average and the advances continued after that. The pair is currently trading at 1.0940, rapidly approaching the key resistance at 1.1000.
This level is a ‘big round number’ and thus, a strong psychological barrier but in February this year, it also became a technical resistance. The pair made several attempts to break the level in April – May of this year but the bulls failed to make a clean getaway and the bears took over momentarily.
Although the pair is trading at the upper Bollinger band, which increases the chances of a pullback, we can see that the two lines are moving apart (expanding), which is a sign of increased momentum. As long as the two bands are expanding, the pair is likely to continue moving in its current direction.
