EUR/USD Floats Below 1.0700. Near-Perfect Triple Bottom.
Amid banking disasters, mergers, and near-saves, the US Dollar is showing seesaw price action and is getting ready for the first Rate meeting since the Silicon Valley Bank debacle. The Fed is in a precarious position because inflation is still high but the banking crisis would be exacerbated by additional tightening.
The Fed is expected to lift the rate by another 25 bps, thus reaching 5.00%; a 50-bps hike is out of the question. According to CME’s FEDWATCH tool, the probability of a 25-bps hike is 52.4%, and there’s a 47.6% chance that the rate will stay the same. Furthermore, according to the same source, the Fed is expected to start easing in June. The probability for that to happen is 59.73%.
Key Events for the Week Ahead
Tuesday at 10:00 am GMT, traders should keep an eye on the release of the German ZEW Economic Sentiment survey, followed at 12:30 pm GMT by a public appearance by ECB President Lagarde. She will participate in a panel discussion at the Bank of International Settlement Innovation Summit, in Basel.
The FOMC will release the Economic Projections, and the Rate Statement Wednesday at 6:00 pm GMT. The forecast of a 25-bps hike (from 4.75% to 5.00%) will likely come true but we should never rule out surprises. At 6:30 pm GMT, Fed Chair Powell will hold the usual press conference and will probably reveal clues about the next steps.
Thursday at 12:00 pm GMT, the Bank of England will announce the rate, which is expected to climb from the current 4.00% to 4.25%.
Friday is PMI day. Starting at 8:15 am GMT, the French Services PMI comes out, followed at 8:30 am GMT by the German Manufacturing and Services PMIs and later at 1:45 pm GMT by the U.S. Manufacturing and Services PMIs.
Technical Outlook – EUR/USD
Last Monday the trading session opened with a price gap. As mentioned several times, most of these gaps will be closed sooner or later and that’s exactly what happened with the most recent one. The pair dropped to close it and in the process, it printed a near-perfect triple bottom.
EUR/USD came very close to 1.0500 on three separate occasions and although the pattern is not flawless, it’s still a sign that the bears cannot break this support, at least for the time being. Currently, there’s a tug-of-war between bulls and bears, with the 50-day Moving Average being the ‘prize’.
A move above 1.0700 and the Moving Average, combined with the triple bottom would indicate that the pair is headed higher. Of course, a very important role will be played by the FOMC rate decision as well as any forward guidance revealed by the Fed or its Chairman.