EUR/USD PRICE, CHARTS AND ANALYSIS:
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EUR/USD FUNDAMENTAL OUTLOOK
EURUSD enjoyed a modest bounce following the European open after yesterday’s consolidation above the 1.0750 handle to trade at 1.0780 (at the time of writing).
The Euro has seen appreciation against the greenback as the Dollar Index (DXY) hovers near six-week lows ahead of the FOMC meeting. Last week’s 50bps hike by the ECB and continuing hawkish rhetoric from the ECB have also helped the Euro with market participants now pricing in at least another 25bps hike in May.
Currency Strength Chart: Strongest – AUD, Weakest – CHF.
This morning brought further comments from ECB President Christine Lagarde who maintained her somewhat hawkish stance as in her words “inflation dynamics remain strong”. Lagarde stressed that there is no trade-off between price and financial stability while stating that the ECB must bring down inflation to its target. We also heard from the German Economic Council who cautioned thatInflation could pick up again if monetary policy is blunted by financial market risks. The Economic Council projects inflation at 6.6% in 2023 and at 3.0% in 2024 in a sign of the inflation challenge ahead for the Euro Area.
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FOMC MEETING AND ECONOMIC PROJECTIONS
A relatively quiet day on the calendar for the Euro Area as all focus will turn to the FOMC meeting later today. Expectations have increased to around 85% in favor of a 25bps hike, the question however is whether this will be accompanied by a dovish or hawkish outlook by Fed Chair Powell. The economic projections are expected to be key as eyes will be focused on how this has changed from the Feds December meeting.
The challenge for the Federal Reserve lies in the fact that further tightening may impact medium sized banks the most thus leading to tighter borrowing criteria and higher costs for US Businesses. This in turn could up the ante on recessionary fears moving forward. However, the Fed need to get inflation under control and may not have much of a choice in today’s meeting, the likelihood of a pause moving forward though has certainly increased.
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TECHNICAL OUTLOOK AND FINAL THOUGHTS
From a technical perspective, EURUSD remains at 6-week highs with the 1.0800 key to further gains. The 1.0800 level served as support at the end of January and provided strong resistance in February as EURUSD attempted to break higher. The path of least resistance does appear to be the upside at present.
Given the hawkish rhetoric from ECB President Christine Lagarde and the 50bps hike last week a increase of 25bps from the Federal Reserve may provide a temporary reprieve for the US Dollar today. However, should we get a dovish outlook and economic projections for the Fed Chair we could very well break higher with the 1.0920 and then potentially 1.1000 psychological level coming into focus.
Alternatively, a hawkish Fed announcement could bring the 1,0750 and 1.0700 levels back into play. Further down we do have support provide by the 100-day MA around 1.0600 handle as well.
EUR/USD Daily Chart – March 22, 2023
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Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda