The euro is under tremendous pressure exerted by the rising tension and confrontation in Europe. Yesterday, another four regions decided to hold referenda to join the Russian Federation. Also, that day, Vladimir Putin declared a partial mobilization of military reservists. All this has a considerable influence not only on the euro but on almost all financial instruments.
Now, investors are withdrawing funds in favor of US assets, thus boosting the already strong US dollar. The Fed’s decision to raise the benchmark rate by 75 basis points and Jerome Powell’s comments about further monetary policy tightening are also contributing to the greenback’s appreciation.
The Federal Reserve chair has admitted that inflation is slackening. However, the slowdown is smaller than anticipated. That is why the regulator needs to raise the benchmark even more. In other words, at the next meeting, the FOMC may hike the key interest rate by another 75 basis points.
However, traders should remember that the greenback is significantly overbought. Thus, to continue climbing, the currency needs either a bounce or a local correction. It is quite possible that the dollar will decline today.
The fact is that the Bank of England may raise the benchmark rate by 50 basis points. Such meeting results may lead to a rise in the pound sterling and as a result, in the euro.
On the chart, we see that the euro/dollar pair settled below 0.9900 on the daily chart. It was hovering near this level for three weeks and a half. As a result, the downtrend continued and the price once again hit the levels logged in 2002. The euro lost more than 200 pips in just 48 hours, thus entering the oversold area. Against the backdrop, the pair rebounded to the earlier broken level. However, the downtrend is still intact. That is why the volume of short positions may jump if the pair drops below 0.9800. Until then, the technical rebound will be in force.
Meanwhile, the pound/dollar pair broke the lower limit of the range, where it was trading for three days. After that, the pair showed a speculative inertial movement and settled at the levels recorded in 1985. However, the pair rebounded by about 100 pips. This is quite a usual phenomenon since short positions are overheated. If the price consolidates above 1.1410, the rebound will turn into a correctional movement. At the same time, traders will receive a signal of a further drop if the price settles below 1.1200.