11.01.202223:47 Forex Analysis & Reviews: Paralyzed dollar gives euro false hopes

The euro never managed to break out of the range, although there were plenty of reasons to move in the market. The EUR/USD pair has been standing in one place for too long, and considering that the New Year holidays are behind us, and there are many interesting events ahead, the long-awaited breakthrough is about to happen. The question is when and in which direction.

The Federal Reserve is extremely hawkish, the futures market is set for almost a four-time rate hike this year. In theory, this should have strengthened the dollar, but it did not.

The US stock market has felt the strongest pressure. The tightening of the Fed's policy automatically makes money more expensive, which is negative for funding investments in stocks. The bond market also got it – the refusal to buy bonds on the balance sheet indicates a decrease in demand for these securities, therefore, in order to balance the market, the yield had to increase. If at the end of last year the yield was at 1.50%, then at the beginning it jumped to 1.80%. Both stocks and US bonds are falling in price due to the tightening of monetary policy, and this development is not to the liking of the US dollar.

However, so far it has not shown any obvious signs in this direction, and the EUR/USD pair is trading sideways. In the week from Tuesday to Thursday, the Treasury should place a new series of bonds. The demand for securities is falling, if, on top of everything else, the dollar starts - the demand for bonds will be under even greater pressure. With this development, yields may well jump to 2%.

Does the US Treasury need this, especially now that the department has begun to actively build up debt after raising the national debt limit. The dollar had many reasons to move, and the fact that it is still standing cannot be called an accident.

As you know, the longer the market stands still, the stronger the movement will be later. The tension is growing, the feet are accumulating, and on both sides, and then there is a sharp and very strong push in one of the sides. The main thing is not to be deceived, that is, not to run into a false exit from the range.

Nonfarm could well serve to exit the EUR/USD pair range. Yes, there has been progress, but this is not the same at all. Theoretically, the next important event that can erase the boundaries of the range may be American inflation. There is no need to try to guess how investors will react to a new batch of data, because it is almost unrealistic.

The most painless solution in this case is a wait–and-see attitude. As long as the EUR/USD pair is trading below the 1.1400 mark, the risk of a short-term decline in the quotation to the 1.1100–1.1000 marks will remain. At the moment, given the whole picture on the market, it is difficult to imagine the beginning of a trend for a decline in the dollar.

Resistance is noted at 1.1360, 1.1380 and 1.1400. Support is located at 1.1315, 1.1300 and 1.1280.

Today's focus is on Fed Chairman Jerome Powell's speech. Investors will seize every word and look for any indication of the timing of the start of rate hikes and the likelihood of using quantitative tightening (QT) to ease price pressure. If the Fed chairman continues to adhere to a straight hawkish attitude, it will be possible to see the strengthening of the dollar again. A scenario in which Powell chooses to show caution will play against the greenback, and it will be difficult for him to attract bulls.