The EUR/USD pair is trading at 1.1100, last seen in May 2020. The US Dollar rose all week but skyrocketed when the US Federal Reserve announced its monetary policy.

A Hawkish Fed Strengthens The Dollar

Announcing that pandemic-related financial assistance would stop in March, the Fed maintained rates and tapering unchanged.

But Chair Jerome Powell’s news conference was full of hawkish signals. He said a rise in every meeting this year is possible, but not in March.

He provided no timeline for the balance sheet reduction since the Committee is currently considering achieving it but said it would start later in the year.

In December, officials considered lowering bond holdings by not replacing maturing bonds instead of stopping acquisitions, a bold move.

The decision came as inflation in the world’s largest economy rose to 7% YoY, a multi-decade high. Powell said strong inflation threatens the employment market, nearing the Fed’s aim.

In a healthy economy, stricter monetary policy should reduce inflation. If the Fed stops buying Treasuries, yields rise and borrowing rates rise.

Wall Street plummeted immediately after the announcement, with key indexes losing for the fourth week in a row. If panic selling affects equities, Powell & Co. may have to moderate their tightening pace.

But the markets handled it favorably. The 10-year US Treasury note yield rose to 1.86% after the Fed’s decision before settling at 1.79% for the week.

Significant Expansion With Ongoing Pricing Pressures

THIS WEEK, the US data was mixed, but the Dollar got a lift from the Q4 GDP number, which showed 6.9% annualized growth in the final quarter of 2021.

Despite this, the US Consumer Price Index rose 5.8% year on year in December, falling short of the predicted 6.1%, indicating persistent inflationary pressures. The core reading rose to 4.9%, above the prediction of 4.8%.

Markit also released its January PMI estimates. The US services index fell from 57.6 to 50.9, while the manufacturing index fell from 57.7 to 55.

Durable Goods Orders decreased unexpectedly by 0.9% MoM in December, while the January Michigan Consumer Sentiment Index was revised down to 67.2.

Markit also revealed the union’s PMI figures. The German numbers were positive, but the region’s service sector development was sluggish, while manufacturing expanded considerably.

The January German IFO poll indicated a 95.7 business climate but a 96.1 evaluation of the actual condition. Consumer confidence in February came in at -6.7, higher than the projected -7.8.

Finally, the country’s Q4 GDP was down 0.7% QoQ, lower than the -0.3% projected. The EU only released the January Economic Sentiment Indicator, which fell from 113.8 to 112.7.

This Week’s ECB And NFP Events

The EU will release its Q4 GDP preliminary estimate of 0.30% QoQ, while Germany will release its January inflation preliminary estimate. On Tuesday, the US will announce the official ISM Manufacturing PMI.

The EU will release its latest inflation and retail sales numbers later this week, and the ECB will meet on Thursday. The central bank is expected to keep its present policy unaltered and make only minor modifications in the future.

By the end of the week, the US will release the nonfarm December Payrolls report, which is predicted to reveal 238K new jobs gained in December. A 3.9% unemployment rate is projected.

EUR/USD Technical Prediction

EUR/USD CHART Source: Tradinfview.com

The EUR/USD pair has bottomed at 1.1120 and is trading close. As technical indicators go south towards oversold levels, the weekly chart shows the pair has resumed its slump.

The 20 SMA has crossed below the 100 and 200 SMAs, keeping a negative slope much above the present level.

On the daily chart, the pair is oversold. The pair are developing considerably below negative moving averages, while technical indicators have steadied at excessive levels.

However, selling interest is expected to be concentrated in the 1.1185/1.1220 price range. If the pair breaks over this barrier, it may target 1.1300. A breach below 1.1100 should trigger a psychological test of 1.1000.