- Investors expect a 75 basis point rate hike from the Fed next week.
- The ECB is expected to raise rates for the first time this week.
- Vulnerable Eurozone countries are facing possible recession.
The market outlook for Euro (6E) futures price remains bullish as markets change their Fed hike expectations from 100bps to 75bps. Consumer inflation expectations have softened, showing that the Federal Reserve’s monetary policy is working. The Fed is more likely to surprise the markets if this confidence drops.
“The Fed has to react … charting a course that is somewhat more aggressive over the second half of this year,” St. Louis Fed President James Bullard said at an event organized by the European Economics & Financial Centre in London.
“It probably doesn’t make much difference to make 100 basis points here and less in the other three meetings (in 2022) or to make 75 basis points here and slightly more in the remaining three meetings of the year,” Bullard said.
The ECB is expected to raise rates by 25bps later this week but is under a lot of pressure as recession looms over the Eurozone. Markets are anxiously waiting to see if Russia reopens the Nord Stream 1 pipeline this week.
“If gas flows do not resume meaningfully, European gas prices will surge, prompting Germany and others to enact gas and power rationing, with a deep recession all but guaranteed if this were to occur,” said Taylor Nugent, an economist at NAB.
“Our base case is that gas flows resume.”
At the same time, Italy is facing political turmoil after Prime Minister Mario Draghi sent his resignation to the president. The PM is still being asked to reconsider his move as it would negatively affect the debt-laden country in these uncertain times. The euro futures rally might not last.
Euro (6E) futures technical analysis:
The 4-hour chart shows the price of 6E trading above the 30-SMA while the RSI is trading above 50. It is a sign that the bulls are now in control after the price found support at parity. However, this bullish price move may likely find resistance at 1.02400, which acted as resistance on July 8.
On the other hand, there is a possibility that the price may trade into the 30-SMA dynamic support from its current level. The uptrend will be confirmed when the price fails to break below the 30-SMA and begins to trade above the 1.02400 level. A break below the SMA will resume the bearish trend.