EUR/USD portrays pre-Fed anxiety below 1.000, ECBSpeak, FOMC actions in focus
- EUR/USD remains sidelined while paring the biggest daily loss in a week.
- ECB’s Lagarde couldn’t defend EUR/USD bulls as Nouriel Roubini backs 1.0% Fed rate hike.
- Yields dribble around multi-year high as fresh fears from Ukraine, China add to risk-aversion.
- ECB’s Non-Monetary Policy Meeting, comments from De Guindos to offer immediate directions ahead of Fed showdown.
EUR/USD flashes mild losses around 0.9960 as it prints the market’s cautious mood ahead of the Federal Open Market Committee (FOMC). That said, the major currency pair dropped the most in one week the previous day as hawkish Fed bets superseded upbeat comments from the European Central Bank (ECB) officials.
ECB President Christine Lagarde conveyed her support for the higher rates during her latest speech. The policymaker also mentioned, “If there were evidence that high inflation risked de-anchoring inflation expectations, then the policy rate that is compatible with our target would lie in the restrictive territory.”
On the same line, ECB Governing Council member Madis Muller said on Tuesday, “rates are far from the level that would slow the economy.” ECB’s Muller added that “interest rates are still low in a historical context.”
Elsewhere, Russia’s plans for occupied regions and the Western agitations for the same also weigh on the EUR/USD prices. “Moscow-installed leaders in occupied areas of four Ukrainian regions plan to hold referendums on joining Russia in coming days, a challenge to the West that could sharply escalate the war and which drew condemnation from Ukraine and its allies,” said Reuters.
On the other hand, the Fed’s 75 basis points (bps) rate hike bore 83% chance at the latest but the chatters over the 1.0% rate lift seemed to have favored the risk-aversion and exerted downside pressure on the EUR/USD. Nouriel Roubini, a well-known global economist, joined the league of Fed hawks on Tuesday.
Furthermore, fears surrounding China and Russia were also underpinning the US dollar’s safe-haven demand. Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. Joining the line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand. Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite.
It should be noted that the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday. For now, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high.
Looking forward, announcements from the ECB’s Non-Monetary Policy Meeting and comments from ECB Vice President Luis de Guindos could offer immediate directions to the EUR/USD pair. However, attention will be on how the Fed manages to avoid recession and still try to tame inflation, which in turn highlights today’s economic forecasts and a speech from Fed Chairman Jerome Powell as more important events than the interest rate announcement.
Also read: Federal Reserve Preview: Forecasting 5% interest rates? Dollar to move on dot-plot, Powell's pledges
Technical analysis
Although the 50-SMA on the four-hour chart restricts immediate EUR/USD upside near 1.0030, sellers need validation from the two-week-old support line, near 0.9950, to aim for the yearly low surrounding 0.9860.