Central Banks, Monetary Policy, And FX Come Into Focus

Heads of Central Banks Testify. US Dollar, Euro, and Pound Prone to Volatility

The US Dollar closed last week on a bearish note, being outpaced by its major counterparts, the Euro and the Pound. Better than expected U.S. economic data released throughout last week, determined inflation expectations to grow at a higher pace than U.S. nominal yields, translating into choppy price action at the end of last week, for both EUR/USD and GBP/USD.

However, the new week started on a timid bullish note for the US Dollar, with EUR/USD currently trading at 1.2090 after coming off highs around 1.2145, and GBP/USD trading at 1.3990, retracing from 1.4045. The week’s main event will be the testimony of Fed Chair Jerome Powell, delivered before the Senate Banking Committee and the House Financial Services Committee on two separate days, but the week’s schedule includes other events that may influence price action.

Key Events for the Week Ahead

Monday, February 22 at 2:30 pm GMT, ECB President Lagarde will speak in Brussels at the European Semester Conference about Stability, Economic Coordination, and Governance. It’s unclear whether the event will have a major impact on the Euro, but it’s always wise to pay attention to public speeches of heads of central banks.

Tuesday, February 23 at 3:00 pm GMT, Fed Chair Powell will deliver his first testimony on the Semi-annual Monetary Policy Report before the Senate Banking Committee. This will be followed a day later (same hour), by his testimony on the same topic but this time before the House Financial Services Committee. Both testimonies can trigger increased volatility, especially the second part of each, when the Committee members will ask questions that are not known beforehand.

Wednesday, February 24 at 2:30 pm GMT, the Bank of England Governor and several MPC members will testify on monetary policy and economic projections before the Parliament’s Treasury Committee. This is yet another reason for increased volatility, thus Pound traders should be aware of it.

Chart Analysis – GBP/USD

The Pound-Dollar pair is currently trading very close to the key level located at 1.4000 and has already touched the upper part of the rising channel. Price has been trapped inside the mentioned channel since September 2020 and thus far it has responded to every touch of its borders, which increases the probability of a bounce lower from current levels.

If this scenario materializes, the drop could extend into the lower boundary of the channel, which is in close vicinity of the 50 periods Moving Average and the support at 1.3700. However, it must be noted that the pair is in an uptrend, which means that a break of the upper boundary of the channel is not out of the question.