EUR/USD seems to have broken range support at 1.0143 ahead of the FOMC rate decision. Prices are retesting that level as resistance. If it holds, extension back toward parity is probably in the cards. Needless to say however, upcoming event risk is heavy-duty and may moot the chart setup.
As it stands, the markets have fully priced in a 75bps Fed rate hike and the central bank will likely deliver accordingly. That'll put the focus on the tone of the accompanying statement and the press conference with Chair Powell to follow.
Looking at Fed Funds futures, the markets' going Fed outlook calls for:
+325bps in 2022
-50bps in 2023
-25bps in 2024
In the past two weeks, USD has pulled back alongside the MOVE index of 1-month implied Treasuries volatility while stocks have rebounded. This suggests that investors are getting increasingly comfortable with the above 2022-24 baseline, and that this has supported some recovery in risk appetite.
However, the Fed must contend with structural inflationary forces such as de-globalization and sticky wages locked in amid the current price growth surge. Further, while priced-in inflation expectations baked into the bond market (tracked via breakeven rates) have fallen, a return to the 2 percent target is seemingly not on the menu for years to come.
With this in mind, officials may signal that easing may not be in the cards so swiftly. That may give the US Dollar fresh fuel for a rally, validating the emerging EUR/USD chart setup.
As it stands, the markets have fully priced in a 75bps Fed rate hike and the central bank will likely deliver accordingly. That'll put the focus on the tone of the accompanying statement and the press conference with Chair Powell to follow.
Looking at Fed Funds futures, the markets' going Fed outlook calls for:
+325bps in 2022
-50bps in 2023
-25bps in 2024
In the past two weeks, USD has pulled back alongside the MOVE index of 1-month implied Treasuries volatility while stocks have rebounded. This suggests that investors are getting increasingly comfortable with the above 2022-24 baseline, and that this has supported some recovery in risk appetite.
However, the Fed must contend with structural inflationary forces such as de-globalization and sticky wages locked in amid the current price growth surge. Further, while priced-in inflation expectations baked into the bond market (tracked via breakeven rates) have fallen, a return to the 2 percent target is seemingly not on the menu for years to come.
With this in mind, officials may signal that easing may not be in the cards so swiftly. That may give the US Dollar fresh fuel for a rally, validating the emerging EUR/USD chart setup.