EUR/USD: Investors Anticipate Monetary Tightening in May Meetings

Highlights

• Euro shows strength against U.S. Dollar
• Attention on guidance for future rate path
• No concrete basis for expecting rate cuts in the latter half of the year

Overview

At the start of the final trading week of the month, the Euro showed strength against the U.S. Dollar as traders look ahead to several central bank meetings in May for indications on when the global monetary policy tightening campaign, which has been the strongest in years, may come to a halt.

At 09:48 GMT, the EUR/USD is trading 1.1014, up 0.0022 or +0.20%. On Friday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $101.48, up $0.24 or +0.24%.

Investors Await FOMC Rate Guidance

Investors are particularly focused on the upcoming FOMC meeting, where Federal Reserve policymakers are widely anticipated to increase rates by another 25 basis points. However, attention will be on the guidance provided for the future rate path. Despite recent economic data indicating a slowdown in U.S. growth, certain areas of the economy remain robust, while inflation remains stubborn, leading traders to debate the magnitude of rate cuts expected from July to year-end.

US and Eurozone Business Activity Quickens

The upcoming meeting of the European Central Bank (ECB) is anticipated by the markets to result in a quarter-point rate increase, with some possibility of a 50bp hike. ECB President Christine Lagarde remarked last week that euro zone inflation remains excessively high and that the ECB’s monetary policy still has some distance to travel to return inflation to its 2% target.

Technical Analysis

The EUR/USD is edging toward resistance on Monday, putting the market in a position to challenge the high for the month at 1.1076. The key level controlling the near-term direction of the common currency is 1.1009.

A sustained move over R1 at 1.1009 will indicate the buying is getting stronger.  If this generates enough upside momentum over the near-term, then look for prices to climb into R2 at 1.1177.

A sustained move under R1, however, will indicate that sellers are coming in to defend this level. This could fuel the start of a near-term correction.

For a look at all of today’s economic events, check out our economic calendar.