EURUSD New lows following Jerome Powell's hawkish speech

The dollar has been strengthening against the major currencies since Jerome Powell's press conference last night. The EURUSD is falling back to a near two-month low this morning after the Fed Chairman decided to take a slightly more hawkish stance, while not indicating anything very new from the December meeting.

As expected, monetary policy remained unchanged, except for the end of QE which was announced for early March instead of late March. Nevertheless, Powell left the pace of normalization of monetary policy unclear, which does not seem to have pleased risky assets. In response to a reporter's question, the chairman left all options on the table to counteract “more persistent than expected” inflation.

The Chairman even left the door open for a rate hike at each meeting, seven by the end of the year, while the Fed usually raises rates at the last meeting of each quarter (up to four per year).

The most likely scenario for Fed policy normalization is now a first-rate hike in March, a second in June, the start of the balance sheet reduction (QT) process by this summer, a third and possibly a fourth by year-end.

The Fed's hawkish rhetoric was evident in the jump in the dollar and bond yields and the fall in gold and risky assets. In addition, rate hike expectations increased and the probability of a 50-basis point rate hike in March, the equivalent of two rate hikes, climbed to 20% after Powell's speech.

From a technical perspective, the EURUSD price has broken out of the bottom of the ascending channel in which it has been trading for almost two months and its Bollinger Bands, which are signals that pave the way for a continuation of the basic uptrend that we have been experiencing for almost a year.

 (Chart Source: Tradingview 27.01.2022)

The EURUSD has continued its downtrend breaking through last year's low of $1.1186. The next target in the short term will likely be the symbolic threshold at $1.10 in the coming weeks.

The next catalysts to follow will be the US household income and consumption data releases on Friday.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.