The EUR/USD pair is balancing around the 1.0500 mark, unable to bounce higher, there is too much negativity around both external and internal. A downward movement to the area of 1.0400 and below looks most likely, but the euro may save a lifeline from the Federal Reserve in the coming days. Thus, the single currency will at least temporarily be able to resist and take a breath.
Perhaps the entire trading and investor environment is preparing for a historic rate hike from the Fed on Wednesday. This is, of course, the strongest shock for the euro and an excellent factor for the dollar's growth. However, this step has been embedded in quotes since March, and since then the dollar index has been able to rise by 7%. In other words, this event is almost completely played out in advance.
Today everything will depend on Fed Chairman Jerome Powell's rhetoric. If he looks restrained without a pronounced aggressive attitude, he will thereby provoke a correction in the dollar index, which will cause the EUR/USD pair to rebound above the 5th figure. The recent drop in the country's quarterly GDP may be the reason for this mood. Powell's speech about the deterioration of economic prospects and the loss of growth momentum may be perceived by markets as a bias towards a less aggressive position, which will further put pressure on the quotes of the US currency, which risks falling under selling pressure.
This is on the one hand. On the other hand, the Fed highlighted the fight against inflation as the main factor. The 75bp rate hike was mentioned more than once at subsequent meetings, and this should be considered nothing other than the Fed's extremely aggressive attitude towards rates. The dollar's growth in such conditions will continue regardless of how much it now looks overbought. In this scenario, the euro will have no chance of even the slightest stabilization. The road down will be completely open.
Do not forget that NFP employment data will be published on Friday, and ADP and ISM employment data in the service sector were released on Wednesday. Employment in the private sector increased by 247,000 in April, which is significantly lower than the expected increase of 395,000 jobs. A sharp decrease in the growth rate of the indicator was recorded, given that in March it was 455,000.
It is not surprising that traders ignored them. Firstly, the data are not regarded as a particularly accurate harbinger of official NFP data on non-agricultural employment. Secondly, all attention is now focused on the Fed meeting, everything else goes in the background.
With the development of events in a positive way for EUR/USD, bulls will first have to overcome the resistance of 1.0560. This is followed by such marks as 1.0600 and 1.0660. Such a scenario looks unlikely, but there are all sorts of things in the foreign exchange market.
Meanwhile, the 1.0500 mark will act as the first support, then a multi-year low of 1.0470 can be considered. A breakthrough of this value will target the bears at the 2017 low at 1.0340.
The breakthrough of the dollar index above the 104.00 mark depends on the Fed. If the picture is favorable for further appreciation, the bulls' next target will be the 105.63 mark – the high of December 11, 2002.
The apocalypse awaits not only the euro. The US stock market may collapse by 50%, Richard Bernstein Advisors predicts.
The main question is what will be in the Fed's final statement, hence investors will dance. Be that as it may, a rise in rates will hurt stocks, especially technology stocks. The NASDAQ index sank by almost 13% in April, which is the most alarming dynamics since 2008. Over the same period, the S&P 500 showed the fastest decline since the beginning of the pandemic, dropping by 8.8%.
At the beginning of the week, the yield of 10-year treasuries exceeded the level of 3% for the first time in the last four years. The yield of these securities, according to a Bloomberg survey, will rise to 3.25% before reaching a peak. If this is really the case, then risky assets - from growth stocks to currencies of developing countries - will face serious difficulties.
