विदेशी मुद्रा विश्लेषण और समीक्षा: 31.05.2023

31.05.2023 09:23 AM

Traders going long on USD, awaiting further rate hikes from Federal Reserve

The euro is under attack again. In the near future, EUR/USD may update monthly lows. Risky assets cannot find support even from the speculations that the European Central Bank will continue to raise interest rates to fight high inflation as well as from the fact that Republicans and Democrats have finally found come to the common denominator to prevent a US default.

Obviously, the plans of the Federal Reserve to suspend the cycle of rate hikes as early as June this year may not be implemented in light of the latest data on inflation in the US. However, the members of the Federal Open Market Committee still insist that inflationary pressure will gradually ebb away at a decent pace. Richmond Federal Reserve Bank President Thomas Barkin said yesterday that he is looking for signs of easing demand to ensure that US inflation is set to lose steam. "I believe we need to bring down inflation through lower demand," Barkin said during a virtual event hosted by the National Business Economics Association. "Before making decisions, I want to make sure that demand is actually declining, which will positively affect inflationary pressures."

As I noted above, last week's data showed that the personal consumption price index (PCE) and the core PCE that excludes food and energy, the Fed's preferred barometer of inflation, beat economists' forecasts. The data aroused speculation that it is too early for the committee to hit the pause button on monetary tightening. Such fundamentals encouraged the US dollar to strengthen against a number of risky assets.

Earlier this month, the Fed's policymakers raised the key interest rate above 5% and signaled that they may be ready to put a stop to the tightening campaign. However, stronger-than-expected economic data has since shaped market expectations for another rate hike in June. The US nonfarm payrolls will be released on Friday which will further shed light on the Fed's future guidance.

At the end of the interview, Barkin did not comment on what move he would support at the June 13-14 Fed meeting. He also pointed out that the US Labor Department's monthly report due this Friday will contribute greatly to his decision.

The technical picture of EUR/USD signals a further bear market. The bulls will be able to enter the market provided that they can protect 1.0670 and seize 1.0720. Once this is done, the buyers will be able to climb to 1.0755. From this level, the door will be open towards 1.0790, though it will be complicated without decent macroeconomic statistics on the Eurozone. In case EUR/USD declines to 1.0670, I don't expect any actions from large buyers. If the buyers don't assert themselves, it would be a good idea to wait until the low at 1.0635 is updated and open long positions from 1.0595.

Speaking of GBP/USD, the pound sterling remains under selling pressure even despite yesterday's upward correction. We could predict GBP/USD's growth only after the bulls take control over 1.24310. A breakout of this level will cement the hope for a further recovery to 1.2460. After this level is reached, we could expect a jump to 1.2500. In case the instrument falls, the bears will try to catch hold of 1.2360. If successful, a breakout of this level will deal a blow to the bulls and push GBP/USD to the low of 1.2320 with the prospects of declining to 1.2275.

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