hawkish expectations

The EUR/USD pair has been caught in turbulence amid conflicting fundamental signals, causing the price to move sideways. Market participants still need to unravel this tangle of contradictions to determine the price's direction. Currently, traders are driven by emotions, experiencing a rollercoaster-like ride. The verdict of the Federal Reserve and the US GDP The results of the Federal Reserve's July meeting were not in favor of the greenback. Bulls returned to the 1.1150 resistance level (the Tenkan-sen line on the 1D chart) and tested it. However, when it comes to the overall outcome, it would be more accurate to say otherwise: the market interpreted the results of the July meeting against the US currency, while the Fed's verdict can be viewed from different angles.

The US central bank avoided specifics, especially regarding the future prospects of tightening monetary policy. According to Fed Chair Jerome Powell, everything will depend on what new economic data shows: the September

US August Jobs Report: NFP Beats Expectations, Dollar Rallies, EURUSD Faces Bearish Pressure

The Rise of Front-End Rates: ECB's Hawkish Stance and Market Impact

ING Economics ING Economics 16.06.2023 09:49
Rates Spark: Keeping upward pressure on the front end After the Fed, the ECB has managed to more than live up to the market's hawkish expectations. The central banks have had some success in giving the high-for-longer narrative more traction and providing especially front-end rates more room to rise. Whether the narrative sticks will ultimately depend on the data.   The ECB more than lives up to hawkish expectations The ECB has lived up to the hawkish expectations, especially on the back of having revised up its own inflation forecasts. In the press conference, President Christine Lagarde used the words we have become accustomed to, that “more ground needs to be covered”. And she heavily hinted at another hike in July. The initial reaction to the ECB decision saw a strong bear flattening of the curve. Note that it mainly comes from pricing out 2024 cuts than pricing in a higher terminal rate. That move later faded somewhat, but 2Y Bund yield still ended 10bp higher on the day, while the 10Y yield was up by 5bp and thus stayed shy of its recent highs at 2.55%. The 2s10s curve now stands at close to -63bp, its most inverted since the banking turmoil in March when the curve briefly hit -73bp.   The inversion is reflective of the ECB having to straddle persistently high inflation on the one hand, but also already weakening economic data on the other. The way the ECB deals with it is to focus on the former while being quite optimistic about the latter. That optimistic view on the economy also gives it more room to keep tightening, keeping front-end yields elevated. But the market will have to account for the increasing probability that this narrow focus on current inflation to determine the ECB's success results in a policy error further down the road. Hence the reluctance in longer rates to follow the front end higher. As a final note, the ECB confirmed that APP reinvestments will end in July. Lagarde signalled that ECB was not worried about the declines in excess reserves in the banking system also with the €477bn TLTRO redemption coming up at the end of this month. Today the ECB will also announce any further voluntary TLTRO repayments from banks.   ECB and Fed were successful in curbing rate cut expectations
Portugal's Growing Reliance on Retail Debt as a Funding Source and Upcoming Market Events"

EUR/USD Pair Faces Turbulence Amidst Conflicting Fundamentals: Traders Await Core PCE Index for Direction

InstaForex Analysis InstaForex Analysis 28.07.2023 15:48
The EUR/USD pair has been caught in turbulence amid conflicting fundamental signals, causing the price to move sideways. Market participants still need to unravel this tangle of contradictions to determine the price's direction. Currently, traders are driven by emotions, experiencing a rollercoaster-like ride. The verdict of the Federal Reserve and the US GDP The results of the Federal Reserve's July meeting were not in favor of the greenback. Bulls returned to the 1.1150 resistance level (the Tenkan-sen line on the 1D chart) and tested it. However, when it comes to the overall outcome, it would be more accurate to say otherwise: the market interpreted the results of the July meeting against the US currency, while the Fed's verdict can be viewed from different angles. The US central bank avoided specifics, especially regarding the future prospects of tightening monetary policy. According to Fed Chair Jerome Powell, everything will depend on what new economic data shows: the September meeting may end with either a rate hike or keeping rates unchanged. Such rhetoric disappointed dollar bulls, as recent inflation reports came out in the "red," reflecting a slowdown in inflation in the US. It is logical to assume that if July's inflation follows the trajectory of June's, the September rate hike will be in question. These conclusions put significant pressure on the greenback – the US dollar index hit a weekly low, declining towards the 100 level. However, the situation changed drastically. Dollar bulls once again saw a "light at the end of the tunnel" thanks to the latest US GDP report. The data significantly surpassed forecasts.   According to preliminary calculations, US GDP increased by 2.4% in the second quarter, with a growth forecast of 1.8%. It is worth mentioning that the first quarter's result was recently revised upwards: the initial estimate showed a 1.3% growth in the US economy, while the final data showed a different result of 2.0%. The Bureau of Economic Analysis report (US Department of Commerce agency) indicates that this growth was driven by increased consumer spending, government and local government spending, growth in non-residential fixed investment, private investment in equipment, and federal government spending. Consumer spending, which accounts for two-thirds of the economy, increased by 1.6% in the second quarter, while government spending increased by 2.6%. EUR/USD sellers are back in action In addition to the GDP report, dollar bulls were also pleasantly surprised by another indicator.   Durable Goods Orders in the US increased 4.7% in June, compared to forecasts of 1.3%. This reading followed the 2.0% increase recorded in May. Orders for durable goods excluding transportation also rose by 0.6% last month. This component of the report also showed a positive outcome, as most experts expected a more modest growth of 0.1%.   As a result, hawkish expectations regarding the Fed's future actions have increased in the market. According to the CME FedWatch Tool, the probability of a 25 basis points rate hike in September is nearly 30%, whereas after the announcement of the July meeting's outcome, this probability fluctuated in the range of 19-20%. Such an information background contributed to the "revival" of the greenback.   The US dollar index fully recovered all lost positions, rising to the middle of the 101 level. Consequently, the EUR/USD pair plummeted and hit two-week price lows.       The European Central Bank also played its role in this. Following the July meeting, the ECB raised interest rates by 25 basis points but did not announce further steps in this direction.   Similar to the Fed, the ECB indicated that one additional rate hike from the central bank would now depend on key economic data, primarily inflation. According to ECB President Christine Lagarde, the central bank has "turned off the autopilot" – decisions on interest rates will be made from meeting to meeting and will be based on "inflation forecasts, economic and financial data, and the underlying inflation dynamics."   It is worth noting that after the previous meeting, Lagarde had directly announced the rate hike at the July meeting. Conclusions The latest US reports, as well as the outcomes of the ECB's July meeting, "redrew" the fundamental picture for the EUR/USD pair. There is one more important piece of the puzzle remaining: the core PCE index, which will be published at the start of the US session on Friday, July 28th. However, for another upward reversal, this indicator must deviate significantly from the forecasted value (naturally, in a downward direction), with experts predicting a declining trend to 4.2% (following the May increase to 4.6%).   From a technical perspective, you can consider short positions on the pair after sellers overcome the support level of 1.0950 (Tenkan-sen line on the weekly chart). In such a case, the next bearish target for EUR/USD would be at 1.0850 – the upper band of the Kumo cloud on the 1D chart.  

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