The hawkish tilt-ignited bearish bets on G10 currencies. How long the tone remains Hawkish to the markets? As a result how low can the Euro fall further? These are the questions.
Finally, the Euro closed below the Weekly-50MA for the 1st time since May 2020. On top of this, the weekly price action has been developing a large bearish H&S pattern.
Looking at the past historical evidence on the weekly chart, since 2020 low thrice the price action fell three straight weeks including the latest fall. So, beyond this fact, there is no concrete evidence to raise an opinion that EURSUD will find support this week.
On the daily chart, the 14-period RSI fell to the oversold zone, but the oscillator underneath remaining bearish. Hence a mixed view of 1.1830 as pivotal and 1.1800-1.1780 as 1st support in the near term. Shifting focus to the weekly, both the indicators are remaining bearish. Hence, selling pressure remains in play into Q2.
Data wise, we will receive the latest PMIs for Germany and France on Wednesday; And PMI and final GDP scheduled for the US on Thursday and Friday, respectively.
Event wise, ECB President Lagarde is speaking today but not a market mover, we believe. Besides, traders remain attentive to Fed speakers this week. Further EUR movement cast on the USD.
Fed review: Definitely, it was a market mover with Gold lost $110, and EURUSD drifted 250pips last week. But as per few analysts, the current hawkish is nowhere near as hawkish as June 19, 2013, which started the taper tantrum.
Bond yields and dollar up, rest settled down-this was the market reaction to the latest FOMC meeting. As expected, the Fed kept its monetary policy settings unchanged, with Fed funds target range at 0.00-0.25% and bond-buying pace at 120bn$ per month. But the hawkish tone which we didn’t expect neither the market.
Driving factors:
Hawkish expression:
The FOMC median dot plot signals two highs in 2023 vs. non in the March meeting. The financial markets were hoping for one hike in 2023-hence a hawkish expression led the USD crosses rally, and the risk-sensitive currencies like AUD and NZD surrenders.
The above table shows that the US central bank has upgraded its growth and inflation estimates noticeably. The core PCE inflation upgraded to 3% from 2.2 y/y and the unemployment rate fall back to 3.8% in 2022 vs. 3.9% March projections.
The latest FOMC dot plot and the economic projections are likely to elevate the USD against G10 currencies but not in a straight line, in any case. Especially against the CHF, EUR, and JPY, the trend is down against the dollar.
Positioning post-FOMC:
FX investors unwind USD shorts from a score -15 (+/- 50 score) last week to a score of -5, as our proxies for electronic trading venues and technical investors reduce shorts. Besides, EUR longs unwind, as our proxy for electronic trading venues adds shorts. In contrast, our proxies for IMM and options investors remain long EUR, as per BNP PARIBAS.
EURUSD may take u turn around 1.1630-1.1600, as per the A-B-C corrective pattern. If it fails to do so, then 1.1500-1.1450 is the next layer to focus on.
Flipside, if the price is moving higher, 1.1950 and 1.2000 are the immediate resistance to watch out for. Before you take fresh short positions in EURSUD, we request traders to wait until Fed minutes.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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