Powell and Goldman Sachs strengthen the dollar

The dollar strengthens. He is supported by Monday's statements by Fed chairman Jerome Powell, which the market interpreted as an announcement of a 50 bp rate hike in the US at the next Fed meeting.

USD grows stronger

Today morning EUR / USD exchange rate went below 1,10. This is the third consecutive day of declines, after the euro failed to break above the resistance created by the low from January 3 this year twice in the last two weeks. ($ 28). 

The dollar is supported by the head of the Fed. Yesterday, attending the NABE conference, he said that "the labor market is very strong and inflation far too high" and added that "there is a clear need to act quickly to bring the monetary policy stance back to a more neutral level". This was perceived as an announcement of an interest rate hike in the US by 50 basis points at the next meeting in May.

The economists at Goldman Sachs go even further. They forecast that the Fed would raise interest rates by 50 bp not only in May, but also in June, and then raise interest rates four times by the end of the year by 4 bp. This would mean that the federal funds rate will increase to 25-2022 percent by the end of 2,25. from the current level of 2,50-0,25 percent. And this will not be the end of the hikes yet. These are also expected in 0,50. 

The situation on EUR / USD

The reversal of EUR / USD quotations observed in the recent days does not yet change the balance of power on this couple's daily chart. From the point of view of developments in the medium term, the EUR / USD exchange rate is still in correction of strong declines, which on March 7 brought the quotation to 1,0806. The actual pretext for this correction was the subsequent change in sentiment in the financial markets. It is precisely the hopes related to a ceasefire or an end to the war in Ukraine observed in all markets. On the basis of technical analysis, it was a large sell-off of EUR / USD.

Daily chart EUR / USD. Source: Tickmill

The described upward correction on EUR / USD crashed twice against the resistance at the level of 1,1121 (the minimum from January 28). Contrary to appearances, it does not have to end the upward correction yet. If the supply side had ruthlessly controlled the market, then after the first return on 1,1121, the euro would be below 1,08. Instead, after a two-day pullback, the gains returned and 1,1121 was hit again. Hence, now, until the EUR / USD rate does not fall below the support at 1,0907, the breakout above the January low is still possible. 

If such a break occurs, within a few weeks the EUR / USD exchange rate has a chance to test the 10-month downward trend line.  Currently, it creates resistance at 1,1380, but in these few weeks it will be 100 pips lower. Only there should the final turn take place and a return to the downward trend, which will bring the euro below 1,08 in some time.