EUR/USD tips into the bearish side after Fed Powell calls the top – Crypto News – Crypto News
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EUR/USD tips into the bearish side after Fed Powell calls the top – Crypto News

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  • EUR/USD saw a hard rally above 1.0880 on ECB rate cut hopes.
  • US ADP labor miss drove the pair back into Wednesday’s opening range.
  • US Fed head Jerome Powell due at 19:30 GMT after Fed rate call.

EUR/USD saw a hard rally in early Wednesday trading, rising three-quarters of a percent bottom-to-top after misses in German Consumer Price Index (CPI) inflation figures, with markets pivoting back into a cautious stance after Federal Reserve (Fed) Chairman Jerome Powell highlighted the need for inflation figures to reflect the Fed’s 2% ceiling, not just hitting it. EUR/USD fell back into the day’s opening bids near 1.0850 as the pair remains stuck in the middle of near-term consolidation before slipping back into the low side after the Fed left their main policy rate unchanged, and focusing on the uncertain economic outlook and reiterating the need for further confidence that inflation will meet and stay at 2%.

German Retail Sales backslid early Wednesday, followed by German CPI inflation easing faster than expected, helping to bolster investor sentiment in the midweek that the European Central Bank (ECB) would see the way forward towards a faster pace of rate cuts.

Daily digest market movers: EUR/USD draws into the middle ahead of Powell appearance

  • The EUR/USD rallied into 1.0880 after German Retail Sales came in at -1.7% for the year ended December, adding to the previous period’s -2.4% as consumer spending cools off, reinforcing an economic slowdown that will push the ECB towards rate cuts.
  • German CPI inflation also declined faster than expected, with annualized German CPI for the year ended January printing at 2.9% versus the forecast 3.3% and the previous period’s 3.7%.
  • Pan-European Harmonized Index of Consumer Prices (HICP) figures are due on Thursday.
  • European money markets are now pricing in 150 basis points in ECB rate cuts through 2024, up from Tuesday’s swap rate balance of 140 bps.
  • Fed chair Jerome Powell due at 19:30 GMT, markets will be straining to find hints of the Fed cutting rates sooner rather than later.
  • US ADP Employment Change slumped to 107K in January versus the forecast 145K, declining from the previous month’s 158K (revised from 164K).
  • US Nonfarm Payroll (NFP) figures due on Friday to cap off the trading week.
  • Fed kept policy rate unchanged, highlighted economic uncertainty and a need for better indications that inflation will hit and stay at 2%.
  • Money markets continue to bet on a March rate cut from the Fed, but risk appetite soured slightly at the prospect of a middling Fed.
  • Rate swaps now see a 96% chance of at least 25 basis points in Fed rate cuts by May meeting.
  • Fed leaves policy rate unchanged at 5.25%-5.5% as expected
  • Fed Powell reiterates that the top is very likely in on rates, and the Fed unanimously agrees that rates will have to come down this year.
  • Despite this, the Fed needs to see inflation come down to and then also stay at the 2% barrier for some time, signaling markets may still be too overbid into rate trim bets.

Technical analysis: EUR/USD poised for a run post-Fed

EUR/USD pulled in both direction on Wednesday, sagging early into 1.0806 before rallying above 1.0880 and settling back where it started near 1.0850 as the market awaits Fed chair Powell. EUR/USD trimmed further into the downside after the Fed kept rates unchanged, testing into 1.0820 on reaction. The pair then accelerated into the low end to test 1.0800 after Fed chair Powell spoke on Wednesday.

The 200-hour Simple Moving Average (SMA) remains a key technical barrier, capping off upside momentum near 1.0860. The EUR/USD has cycle familiar levels since the middle of January, but downside pressure has been mounting as swing highs continue to lag lower.

Daily candlesticks have the pair stuck on the low end of a congestion pattern at the 200-day SMA near 1.0850, with topside price action capped by the 50-day SMA just north of 1.0900.

EUR/USD hourly chart

EUR/USD daily chart

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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