Hawkish Projections Vs Dovish Pricing

Last week was characterized by bullish breakouts in the counterparts of the U.S. dollar on the back of the market’s dovish pricing. The Federal Reserve kept interest rates steady but unexpectedly delivered a hawkish surprise by projecting two rate hikes this year. The market however, doubts the Fed’s projection and is pricing in only one more rate hike this year but more importantly, it is expecting rate cuts as soon as next year. This assumption has led to the renewed sell-off in the U.S. dollar.

Market participants will be looking for further cues from Fed Chair Jerome Powell’s testimony on Tuesday and Wednesday.

On Thursday, the Bank of England is expected to raise rates by another 25bp.

The week could start off more quietly, as U.S. markets are shut today due to a holiday.

GBP/USD

The pair broke above 1.2650 and climbed another 200 pips higher, heading towards 1.2850. While the next higher target is clearly seen at 1.30, the pair is in overbought territory which increases the chances for a correction. The 1.2650-area could thus serve as a support zone in short-term time frames.

DAX

The index broke above 16330 and headed towards 16500. However, bulls took a breather at the lofty highs and send the DAX lower for a correction. We see a crucial support area at around 16150 from where bulls may take the opportunity to jump back in.

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