16.05.202208:15 Forex Analysis & Reviews: EUR/USD struggles to rise higher

At the beginning of the week, the greenback showed a steady rise, consolidating near the 20-year high. Meanwhile, the euro is trying really hard to advance new peaks.

Demand for the US currency as a safe-haven asset remains high. It helps the greenback appreciate even during geopolitical storms. This is why it is climbing higher now despite temporary rollbacks.

On May 13, the US dollar index reached 104.54, exceeding the level of 105, the highest since December 2002 for a short period of time. At the same time, it has been growing for six weeks in a row.

According to Barclays FX strategists, concerns about the global economy against the background of the Russian-Ukrainian conflict have become a powerful driver for a rise in the US dollar.

Another bullish factor for the greenback was soaring inflation. Investors were not sure that the Fed would be able to take it under control. As a result, they rushed to buy the US dollar. They also fear that the central bank's aggressive monetary policy tightening may trigger a recession. Notably, the risk of recession has been looming on the horizon for some time.

The euro kicked off the week, tiptoeing on the verge of a decline. It is located at the lowest level since 2017. Compared to a strong US dollar, the euro is unable to resume growth. The main reason is the negative impact of the Russia–Ukraine conflict. On May 16, the EUR/USD pair was trading near 1.0407, slowly but surely moving to new peaks. Earlier, the euro hit 1.0398. By now, it has slightly erased the losses of last week.

Marker participants are now focused on Fed officials' comments. They want to find out whether the regulator hike the key rate by 75 basis points at its next meeting. Currently, traders are expecting a 50 basis point rate increase at the next two FOMC meetings. At the same time, some analysts are confident that the Fed is unlikely to raise the key rate more aggressively. If this scenario comes true, it may affect the US dollar.

So, this probability is extremely low. The greenback spread its wings. Since the end of March 2022, it has been steadily gaining momentum. According to economists at UBS Capital Markets, the US currency is sure to advance higher amid the Fed's aggressive monetary policy. The US regulator is now more hawkish than other central banks.

The catalyst for the growth of the greenback was also risk aversion. Many traders have revised their portfolios in favor of the US dollar. At the same time, fresh data on the US dollar index revealed an increase in long positions for the US currency. Large investment funds increased their long positions on the US dollar by 8%. Analysts note that the current trend is likely to persist, pushing the US dollar higher.