• The S&P 500 has done almost nothing during the trading session on Tuesday as traders continue to wait for multiple central bank speakers at the Jackson Hole Symposium.
• This can have a massive influence on where risk appetite goes, and those speakers will move interest rates.
• Interest rates rising certainly will have a major influence on risk appetite, and therefore it’s a bit of a feedback loop.

From a technical analysis standpoint, the 200 Day EMA sits just above and is offering a bit of resistance, so if we can break above it, we might have the ability to run toward the 4300 level, which is a large, round, psychologically significant figure. That’s an area that has been important recently, and therefore a bit of market memory could come back into the picture. In that scenario, I would anticipate a lot of selling pressure. However, if we were to break above the top of that area, then it’s likely that the market could go much higher, perhaps entering into a bullish trend.

I do not expect that to happen though, because the world has far too many issues out there to think that we are simply going to take off. Ultimately, this market will continue to be noisy, but it’s possible that we may finally get some type of longer-term clarity.

That being said, if we break down below the 50 Day EMA, then we could drop down to the 4000 level rather quickly. That would almost certainly be due to the interest rates tightening and traders suddenly realizing that central bankers will have to fight inflation rather than lift assets, something that they have not done for at least 14 years. This is an issue that the central bank has created itself, as the Federal Reserve has spoon-fed Wall Street for far too long.

Noise and Disbelief Ahead

Because of this, we will continue to see a lot of noise and disbelief but given enough time it’s likely that we will eventually see some type of realization. The realization will more likely than not send this market much lower, but you have to follow what price does because quite frankly the market “should have fallen over the last couple of weeks. Now that we have had this big bounce, we will have to see how things play out.

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The price of the EUR/USD currency pair stumbled again in a rebound higher, as the negative pressures on the euro are still strong and persistent. After attempting to rebound higher at the beginning of this week’s trading, towards the level of 1.0462, it retreated to the vicinity of the support 1.0400, and last week the price of the euro dollar fell towards the support level 1.0365. The exchange rate of the euro against the dollar has slipped again near its lowest levels in the last five years and may risk remaining under pressure near those levels in the coming days unless the US currency stumbles further in the wake of Friday’s stumble.

The single European currency, the Euro, came under pressure from the dollar’s strength early last week and approached its lowest level in five years, after Eurostat data showed mixed overall and core European inflation rates. The dollar’s erratic strength was an important driver of the euro’s losses, and thus the sharp recovery late in the Friday session when the greenback suffered a setback following the release of the ISM manufacturing PMI for June.

Many economists took Friday’s negative ISM PMI surprise as an indication of the ongoing US economic slowdown, a popular concept recently but which did little to help the US dollar on Friday, which fell against many currencies ahead of the weekend’s close. .

The US dollar did not benefit much last week from the ISM manufacturing survey or the Federal Reserve’s (Fed) preferred inflation measure – the core PCE price index – which stalled for June, and in the meantime, the annual rate fell from 4.9%. 4.7% all the way. Both were followed by broad losses for the dollar, although it was also quick to attract buyers from the market during the weakness, and it is now likely that much of the EUR/USD pair this week will depend on the market’s response to important events in the US calendar and to anything emerging. Especially on the ECB policy front.

The euro received no help last week when ECB President Lagarde stressed the importance of discretion regarding the timing and size of any changes in interest rates after the 0.25% hike in July that was previously announced last month. Given the prevailing uncertainty, normalization should remain gradual. Currently, our goal should be to avoid the entrenchment of high imported inflation in the near term by feeding high inflation expectations. That is why we are ending policies that sought to fend off deflationary dynamics, such as net asset purchases and negative rates, said Fabio Panetta, member of the European Central Bank’s Executive Board, on Friday.

added. Further adjustments to our monetary policy stance will depend on the evolution of inflation expectations and the economy. At this point, inflation expectations are around 2% and wage increases remain moderate. We are closely monitoring these developments. We want to see how the economy reacts to tighter financing conditions and a deteriorating global and domestic economic outlook. And with fears that the global economy has been leading markets to speculate lately on their previous assumptions about interest rates, the euro is likely to pay close attention this week when Bundeswehr chief Joachim Nagel and ECB President Lagarde appear publicly on Monday and Friday, respectively.

However, along the way, the minutes of the European Central Bank’s June meeting will expire on Thursday while a number of Fed policymakers are scheduled to speak publicly from Wednesday, which is also when the minutes of the June meeting of the FOMC are released.

Where is the EUR/USD headed?

According to the technical analysis, the general trend for the EUR/USD price is still bearish, and stability below the 1.0500 support will continue to support the bears for a further move down. At the moment, the closest support levels are 1.0380 and 1.0290, which are sufficient at the same time to push the technical indicators towards oversold levels. On the upside, and according to the performance on the daily chart, bulls break through the resistance levels 1.0645 and 1.0800 to make a breach of the current trend.

We expected that the gains in the EUR/USD price would be temporary, as the price jumped towards the 1.0748 resistance level, following new tightening comments by European Central Bank Governor Lagarde. The pair returned to decline quickly after the markets absorbed the statements to the support level 1.0642 and settles around the level of 1.0670 at the time of writing the analysis, before announcing the growth rate of the US economy.

European Central Bank President Christine Lagarde said officials would not rush to withdraw stimulus as her French colleague echoed her to insist there was no consensus on a half-point rate hike. A day after the European Central Bank president’s schedule of quarter-point increases angered hawkish officials wanting the option to act more aggressively.

“I don’t think we’re in a situation where there is a lot of demand right now,” Lagarde said at the World Economic Forum in Davos, Switzerland. “It is certainly supply-side inflation of the economy. And in that case, we have to move in the right direction, of course, but we don’t have to rush, and we shouldn’t panic.”

Lagarde spoke after publishing a blog post effectively setting the course for the ECB’s next three scheduled decisions that will put the institution on track to finally exit sub-zero monetary policy and align more closely with its global peers already working against the threat of inflation. Villeroy’s notes indicated that he and other officials are currently in agreement with her schedule.

“The 50 basis point rise is not part of the consensus at this point, I’m clear,” the governor added. She added: “It will be a normalization of our monetary policy, it will not be tightening,” and “the increase in interest rates will be gradual.”

Under Lagarde’s calendar, the European Central Bank will end its bond purchases in June, raise once in July and once in September, raising the deposit rate from -0.5% to zero. That timetable has angered colleagues who want to keep open the option to act faster, according to people familiar with the matter. “When you get out of the negative level, it could be at zero, and it could be just above zero,” she said, dismissing concerns about whether the central bank might consider a 50 basis point move. “This is something we will determine based on our expectations, on the basis of our future guidance.”

Both Lagarde and Villeroy see rates moving higher to a level considered neutral, which could be between 1% and 2%. For his part, the French governor has set a vision to reach that range “sometime next year”, which would imply a whole series of price increases within the next 18 months. Investors are betting on four increases of 25 basis points by the European Central Bank by the end of 2022.

The European Central Bank chief played down the risks of a recession in the region, saying that “at the moment, we are not experiencing a recession in the eurozone.” She cited “low rates” of unemployment, large household savings, and the prospect of a strong summer for the tourism industry as forces that would offset negative shocks from the war and record inflation. Villeroy agreed: “When we look at the activity it’s still resilient in Europe.” “We will continue to have significant growth this year.”

According to the technical analysis of the pair: There is no change in my technical view for the price performance of the EUR/USD currency pair. It is still at the beginning of breaking the descending channel and lacks sufficient momentum to confirm this, as it is necessary to move towards the resistance levels 1.0795 and 1.1000, respectively. To do that I still see any gains in the Eurodollar will remain up for sale as long as the Russo/Ukrainian war continues, and the ECB rate hike still has time. On the downside, the support level at 1.0485 will be the starting point for the bears again. The Euro-dollar does not expect important European data today, and all focus will be on the announcement of the growth rate of the US economy and the weekly jobless claims.

The Euro has bounced ever so slightly during the trading session on Friday, limping into the weekend. At this point, the market looks as if it is ready to go much further, but we may get a short-term bounce in the meantime. This would make a certain amount of sense considering that we have just broken through massive support, and maybe getting a little bit oversold from the short-term perspective.

On the upside, the 1.05 level is where we had broken down from, so would make quite a bit of sense to revisit that area. Between there and the 1.06 level I would anticipate seeing a lot of noise and resistance, so I will be looking for an exhaustion candle in that region to start shorting again. After all, the US dollar continues to be like a wrecking ball against almost everything, as it is by far the strongest currency out there.

The European Central Bank has a lot of issues right now, not the least of which will be trying to protect an economy that is having issues with energy. That almost certainly means a slowdown, so at this point, I would be cautious about trying to play any bounce. On the other side of the Atlantic Ocean, you have the Federal Reserve which is more than willing to get hawkish and tighten the screws on monetary policy. With that being said, this is a market that is on a one-way path to lower pricing.

You want to look for some type of value when buying a currency, and this is a perfect example of that. Simply jumping in and shorting this market right away is somewhat reckless, although it almost certainly is the right thing to do over the longer term. I will be looking for that bounced offer “cheap US dollars” that I can pick up value based upon.

Given enough time, I believe that this market could go to the parity level, although that is a major psychological area that will attract a ton of attention. This does not necessarily mean that it happens quickly, but unless the Federal Reserve changes its overall tune, not to mention the ECB, there is almost no reason to think that we will not make it sometime in the next several weeks, or perhaps couple of months.