FOMC Makes Bold Rate Moves, Opens the Door for Additional Big Hikes

Dollar Boosted by Hawkish Fed, Euro Counters With Bounce at Support.

The greenback appreciated against most of its counterparts last Thursday after the FOMC decided to raise the rate by 75 bps. The markets largely expected a hike of only 50 basis points but some voices speculated that a bigger one was in the cards, with rising inflation playing an important role.

The main takeaway from last week’s FOMC meeting was Jerome Powell’s indication that the Fed will be more aggressive with the rate hikes in the months to come. According to the Fed Chair, this will allow more flexibility in the future but he also mentioned that we shouldn’t expect 75-bps hikes to become the norm. However, his statements open the door for another 75 bps hike in late July.

The heads of the Fed and the ECB will both testify this week, which means that we could get some more insights into the ways they choose to tackle the rising inflation and avoid an economic recession.

Key Data for the Week Ahead

Monday at 1:00 pm GMT, ECB President Christine Lagarde will testify in front of the European Parliament’s Committee on Economic and Monetary Affairs. Two hours later, she will testify before the same Committee but this time in her capacity as the European Systemic Risk Board Chair.

Wednesday at 1:30 pm GMT it will be Fed Chair Powell’s turn to testify. The topic will be the Semi-Annual Monetary Policy Report and the testimony will take place before the Senate Banking Committee. The next day at 2:00 pm GMT, the Fed Chair will testify again on the same topic but this time before the House Financial Services Committee.

Thursday at 7:30 am GMT we take a look into the state of the European economic situation with the release of the German Manufacturing and Services PMIs. These are leading indicators of economic health derived from the opinions of purchasing managers from the respective sectors.

The final notable event of the week will be the German Ifo Business Climate, scheduled for release Friday at 8:00 am GMT. It’s a survey with a very large sample size (approximately 9,000 businesses) that asks respondents to offer their opinion on overall business conditions and their expectations for the next half a year.

Technical Outlook – EUR/USD

The pair is currently trading at 1.0520 after an almost perfect bounce at 1.0350 support but lately, the US Dollar is winning the battle against most of its counterparts. The strength exhibited by the greenback suggests that the pair will likely make another attempt to break support and that the latest bounce was just a follow-up reaction to the sharp drop that started at 1.0775 resistance.

To the north, the bulls will encounter resistance at the 50-day Moving Average and the horizontal level at 1.0635, as well as the long-term bearish trend line seen on the chart. A break of this confluence zone would need huge bullish strength but the probability is low unless something changes on the fundamental scene.