The Fed Strikes Again: 75-bps Rate Hike and Hawkish Outlook

Euro and Pound Hit Historic Lows, DXY Skyrockets

The Euro plunged to a 20-year low against the US Dollar, while the Pound sank to a 37-year low after the Fed decided in favour of another 75 bps mega-hike. The Dollar renewed its assault on its counterparts, taking the Euro to a low of 0.9552 and the Pound to 1.0356, while the US Dollar Index (DXY) climbed to a high of 114.52 (a level last reached 20 years ago).

In addition to the rate hike, the Fed maintained a hawkish stance, pointing towards a peak rate of 4.6% in 2023. This will likely keep the greenback’s momentum up for an extended period, although the DXY is deep in overbought territory, while the EUR/USD and GBP/USD are oversold.

Key Events for the Week Ahead

Monday at 1:00 pm GMT, ECB President Christine Lagarde will testify in Brussels, before the Committee on Economic and Monetary Affairs. This has the potential to be a strong market-mover, especially if the President will drop clues about the ECB’s next move regarding monetary policy.

Tuesday at 11:30 pm GMT, Fed Chair Powell will speak at an event hosted by the Bank of France, on the topic of digital currencies. This will probably affect cryptocurrencies more than fiat currencies but traders should be aware of it nonetheless.

Tuesday at 2:00 pm GMT, the U.S. Consumer Confidence survey will be released, showing the opinions of about 3,000 households about the overall economic situation.

Wednesday at 2:15 pm GMT, the Fed President will deliver opening remarks in St. Louis, at the Community Banking Research Conference.

The main event of the week will be the release of the Core PCE Price Index, scheduled for Friday at 12:30 pm GMT. This is one of the Fed’s main gauges for inflation and since inflation is the prime reason why the Fed is tightening its monetary policy, the PCE release should be watched closely because it may trigger strong moves.

Technical Outlook – EUR/USD

The pair is currently trading at 0.9620, having retreated off the low at 0.9552. The RSI is showing oversold on Daily, Weekly, and even Monthly charts, so it’s relatively safe to assume that we will see a bounce higher in the near future.

The last S/R level that the price reacted to is 0.9952, while 0.9660 is a level that was touched 20 years ago and it cannot be considered an active S/R, at least until we observe some price action around it. The same applies to 0.9500 and all BRNs (big round numbers) below the current price. We cannot consider them active S/R levels but usually, price reacts to this type of level.

The overall bias is clearly bearish but the extreme oversold condition will likely generate some sort of relief rally. However, right now going long is like trying to catch a falling knife, so proceed with caution.