• The US Federal Reserve delivered a 75 bps rate hike, triggering recession fears.
  • The European Central Bank remains a laggard, now working to prevent debt crises.
  • EUR/USD  remains on a bearish path and has room to extend its losses below 1.0340.

Central banks provided volatility to the FX board these days, resulting in EUR/USD trading as low as 1.0358 and as high as 1.0601. The pair settled a handful of pips above the 1.0400 threshold as dollar buyers juggled between recession fears and lingering demand for safety.

Deepening recession fears

The US Federal Reserve had a monetary policy meeting, and as widely anticipated, policymakers decided to lift the funds rate by 75 bps, the largest hike since 1994.  The main benchmark is now at a range of 1.5% to 1.75%. Chief Jerome Powell said that the next meeting could well be a decision between 50 bps and 75 bps, taking 100 bps off the table, which was initially read as dovish.  Stocks rallied on relief, and the dollar fell, although the movements were short-lived.

The US central bank upwardly revised PCE inflation to 5.2% for this year, from 4.3% previously. Also seen at 2.6% in 2023, 2.2% in 2024. Growth for this year, on the other hand, has been downwardly revised to 1.7% from 2.8%.  "The Committee is strongly committed to returning inflation to its 2 per cent objective," Powell said.

But it was not just the Fed. Central banks around the world are taking similar steps to tame inflation. However, lifting rates also means higher borrowing costs for mortgages, credit cards and other loans. And that is taking place while major economies struggle with slowing economic growth, as echoes of the coronavirus pandemic resonate. The Fed’s decision fueled fears of a US recession, pushing US main indexes to levels that were last seen in January 2021. The Stoxx Europe 600 index also plummeted to an over one-year low.

Demand for government bonds sent yields sharply down, which in turn undermined demand for the American currency.

European jitters continue

Across the pond, the European Central Bank called for an emergency meeting amid a sell-off in bonds. “The pandemic has left lasting vulnerabilities in the euro area economy which are indeed contributing to the uneven transmission of the normalization of our monetary policy across jurisdictions,” policymakers noted before announcing they would reinvest redemptions from the ECB’s emergency bond-purchasing program in a flexible way and design a new “anti-fragmentation instrument,” to prevent potential debt crises among EU member countries.

The ECB has pre-announced it would hike rates by 25 bps in July, the first move in over a decade, lagging behind most other major central banks. That is one of the main reasons the shared currency is unlikely to gather substantial momentum, regardless of a weakening greenback.

The European situation became more fragile four months ago when Russia decided to invade Ukraine. The attacks continue, resulting in energy and oil shortages that further disrupt economic progress in the Old Continent. The latest on the matter came from the European Commission, as President Ursula von der Leyen, alongside the leaders of several member countries backed Ukraine's bid to join the EU, saying it should be given "immediate" candidate status. There’s no foreseeable end to the war, and that should add to EUR jitters.

With central banks done, for now, the focus will return to growth and inflation. The macroeconomic calendar will bring next week the June S&P Global PMIs for the EU and the US and some confidence indicators. Also, Fed’s Chair Jerome Powell is due to testify on the Semi-Annual Monetary Policy Report before the Senate Banking Committee and before the House Financial Services Committee.

 EUR/USD technical outlook

The long-term picture for the EUR/USD pair is bearish. The weekly chart shows that the pair posted a lower low and lower high for a second consecutive week, while a firmly bearish 20 SMA remains far above the current level. Technical indicators have turned directionless within negative levels after correcting extreme oversold readings, reflecting bears’ strength.

The risk is also skewed to the downside, according to the daily chart. The pair plummeted below its 20 SMA last week, and the recent recovery fell short of testing it, now providing dynamic resistance at around 1.0640. The 100 and 200 SMAs accelerated their slides and maintained their firmly bearish slopes well above the current level, while technical indicators resumed their declines within negative levels.

An immediate support level comes at 1.0470, followed by the 1.0400 figure. Below the latter, the pair has room to extend its slump towards the 1.0340 region, a strong static support area. Further declines should open the door for a test of parity.

The weekly high at 1.0600 provides immediate resistance en route to the 1.0680 price zone. Further gains seem unlikely, although the next relevant level to watch is 1.0770.

EUR/USD sentiment poll

According to the  FXStreet Forecast Poll, the EUR/USD pair may soon find an interim bottom. The weekly perspective shows most polled experts expect the pair to hold around the current price zone, with an average target of 1.0448. Bulls, on the other hand, take over the monthly and quarterly views, although the pair is barely seen recovering above the 1.0500 threshold.

The near-term moving average in the Overview chart maintains a firmly bearish slope, while the longer ones have turned flat. Nevertheless, the chart shows that the number of those betting for slides below the 1.0200 price zone continues to increase, with a test of parity becoming more likely in the next few weeks. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD falls from 1.0600 on Lagarde's speech

EUR/USD falls from 1.0600 on Lagarde's speech

EUR/USD is trading below 1.0600, meeting fresh supply on ECB President Christine Lagarde's introductory speech on Day 2 of the ECB Forum in Sintra. The US dollar struggles amid a positive shift in risk sentiment and firmer yields. US data awaited. 

EUR/USD News

GBP/USD bounces towards 1.2300 amid renewed USD selling

GBP/USD bounces towards 1.2300 amid renewed USD selling

GBP/USD is bouncing back towards 1.2300, capitalizing on the renewed selling in the US dollar across the board. The risk recovery is weighing on the dollar, despite the rebounding Treasury yields. Brexit and UK political woes remain a drag on the pound. US data eyed. 

GBP/USD News

Gold sticks to gains near $1,825, upside potential seems limited

Gold sticks to gains near $1,825, upside potential seems limited

Gold attracted some dip-buying on Tuesday and reversed a part of the overnight sharp retracement slide from the very important 200-day SMA. Gold held on to its modest gains through the early European session and was last seen trading above the $1,825 level.

Gold News

How to use the Fibonacci Retracement indicator to trade Bitcoin and Ethereum

How to use the Fibonacci Retracement indicator to trade Bitcoin and Ethereum

A brief technical and on-chain analysis on a few cryptos. FXStreet’s analysts evaluate where the hottest cryptos on the market could go next.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures