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FX.co ★ 22.06.2022: USD to go on rising against European currencies. Outlook for EUR/USD and GBP/USD

22.06.2022: USD to go on rising against European currencies. Outlook for EUR/USD and GBP/USD

Although the macroeconomic calendar is absolutely empty, the currency market situation changed, allowing the US dollar to jump. The rise was driven by rumors about Jerome Powell’s testimony in Congress.

It is expected that the US president will ask the House of Representatives to introduce a fuel tax holiday. The tax holiday will also concern gasoline, whose price skyrocketed to record highs. This is one of the thorniest issues for the US community. However, the market reaction was mainly spurred by emotions caused by the government’s intention to curb inflation. In addition, business people usually consider a decline in taxes a positive factor.

However, investors could be disappointed since Congress may take a decision only on the federal gasoline tax that totals 18.4 cents per gallon. Meanwhile, gasoline prices exceeded $5 per gallon long ago. It means that a decline is likely to be insignificant. What is more, every state has its own additional taxes, which vary from 14.66 cents in Alaska to 66.98 cents in California. Notably, state areas may also impose additional taxes. The federal government cannot force states to introduce or abolish any tax. It can only recommend that they take such steps.

In any case, traders have already priced in the introduction of a tax holiday. Now, the situation depends on both Congress and states. It is still unknown whether local authorities will follow the federal government or not. It is obvious that reaction to such measures will be seen only some time later. However, once investors learn about just a minor change in fuel prices, currencies may return to yesterday’s levels.

Notably, fuel prices are the most important issue in the US. This is proved by the fact that the market almost ignored the UK inflation report.

Meanwhile, the consumer price growth accelerated to 9.1% from 9.0%. It means that at the next meeting, the Bank of England is highly likely to raise the benchmark rate by 0.50%. This information should have boosted the pound sterling.

On the trading charts, we see that the pound/dollar pair began falling after the recent rebound from the support area of 1.2155/1.2180. In fact, it is a signal of the downtrend revival.

Under the current conditions, the volume of short positions will surge if the price settles below 1.2155 on the four-hour chart. This may cause a further decline towards the psychological level of 1.2000. Otherwise, the pair may slacken near the support level, thus spurring a rebound.

Meanwhile, the euro/dollar pair returned to the mirror level of 1.0500 after a short-lived upward impulse. This movement is pointing to high speculative interest among traders. If the price settles below 1.0500 at least on the four-hour chart, the volume of short positions may increase. In this case, the pair may slide deeper to 1.0470, 1.0400, and 1.0350.

According to the alternative scenario, the pair will repeat the previous scenario where the level of 1.0500 is in focus. This, in turn, may lead to stagnation and a rebound.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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