London, Thursday, 27 January 2022 -
The Euro is somewhat weaker versus most G10 currencies, but it is particularly vulnerable to continued dollar surge following the Fed's hardline confirmation meeting yesterday.
While the chances of a surprise rate hike were slim, markets anticipated that the big event of the evening would be the press conference following the announcement that rates would remain unchanged.
Given the recent collapse in equity markets, market participants could believe Fed Chair Jerome Powell would err on the side of caution in his messaging, despite the fact that the Fed has no statutory authority to consider stock market events.
Instead, he failed to rule out a rate hike at every scheduled meeting this year, and a 50 basis point hike is not out of the question.
The EUR/USD fell as a result of this bullish confirmation, despite the ECB's dovish stance on policy normalization.
Even though inflation is presently over 5%, ECB Chief Economist Phillip Lane stated earlier this month that the ECB expects inflation to fall in 2022 and settle below the Bank's 2% objective in 2023 and 2024, reducing the urgency to raise rates before 2023. (December 2021).
As the ECB remains dovish in its approach to policy normalization, such optimistic confirmation brought EUR/USD down.
Even though inflation is presently over 5%, ECB Chief Economist Phillip Lane stated earlier this month that the ECB expects inflation to fall in 2022 and settle below the Bank's 2% objective in 2023 and 2024, reducing the need to raise rates before 2023. (December 2021).
Following a brief bullish fakeout, the EUR/USD has retreated and now trades far below the bottom bound of what appears to be an ascending channel within a wider decline.
The recent solid break below the channel is gaining traction, but keeps an eye out for any short-term pullbacks, especially if the RSI enters oversold zone.
With the possibility of a longer-term decline in the EUR/USD, it becomes easier to identify probable levels of support on the weekly chart.
The most important level to watch is 1.1168 (the low from June 2020), with continued selling highlighting the support zone (1.0990 – 1.1020) and 1.0770. Before the lower bound of the already broken ascending channel, the 1.2750 level may give resistance, followed by the 1.1350 level (refer to daily chart).
(Research and editing by: The Decision Maker)