US Central Bank Governor Jerome Powell reaffirmed that the bank is determined to raise US interest rates further in the future until US prices stabilize. This evaporated as a result of the positive momentum of the euro against the US dollar EUR/USD from the European Central's signals about tightening. The currency pair moved towards the support level 1.0566 at the time of writing the analysis, after its stability since the start of the week's trading, around the resistance level 1.0695, awaiting the important US economic events and data.
Investors usually pay more attention to the question-and-answer session with lawmakers, when the Fed chairman will face grilling on inflation expectations and interest rates. After a string of encouraging data released recently that highlighted the resilience of the US economy, several Fed officials confirmed that US interest rates could be raised beyond the 5.1% point they expected in December.
Market pricing currently suggests rates will peak around 5.4% and the big question is whether Powell will endorse this view.
Given how strong the pulse of economic data has been lately, with service inflation remaining persistently high and the labor market still running at full capacity, it seems likely that the Fed chief will issue a similar hawkish tone to his colleagues. Another topic that could ignite fireworks in the markets is the balance sheet, as the report prepared by the Federal Reserve stated that the pace of quantitative tightening could be adjusted if necessary.
The greenback is likely to benefit from any hawkish rhetoric, especially on the balance sheet, although the broader path for the currency will depend mostly on upcoming US nonfarm payrolls data on Friday and next week's inflation report.
In the geopolitical sphere, the US Senate will unveil a bill that would allow the White House to “respond” to the national security threats posed by companies such as TikTok. There's a sense that TikTok's days are numbered in the US, at least in its current form. That notion has fueled a serious rally in shares of rivals like Snapchat, which rose 9.5% yesterday.
Yesterday… US Central Bank Governor Jerome Powell said in prepared testimony before a Senate committee that the US Federal Reserve could increase the size of interest rate increases and raise borrowing costs to higher levels than previously expected if the evidence continues to point to a strong economy and persistently high inflation.
“The latest economic data came in stronger than expected, indicating that the final level of interest rates is likely to be higher than previously expected,” Powell added in his testimony before the Senate Banking Committee. And "If the aggregate data indicates that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
EUR/USD forecast today:
- After a period of cautious neutrality in the performance of the price of the EUR/USD currency pair, the strongest opportunity was for bears to gain more control over the trend.
- According to the performance on the daily chart, breaking the support level 1.0570 will deepen the movement of technical indicators towards strong oversold levels.
- The most important support levels are for the current performance at 1.0520 and 1.0300.
- The return of the euro-dollar must be above the resistance 1.0800, in order for the currency pair to abandon its current bearish outlook.
Today, the euro/dollar will interact with the announcement of the growth rate of the eurozone economy and statements by European Central Bank Governor Lagarde. Then the second testimony of US Central Bank Governor Jerome Powell, which is usually confirmation of what was stated in his testimony yesterday.
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