Inflation Is The Biggest Risk

The war in Ukraine enters its third week and the outlook for financial markets is seriously uncertain. Global geopolitical risk, a slowdown in growth, high inflation and central banks that will be forced to tighten add to concerns about the global economic recovery.

The biggest risk is inflation. The Federal Reserve is expected to lift interest rates by 25bps on Wednesday. The focus will however be on the Fed’s official forecast and the outlook beyond the six quarter-point rate hikes this year that are already priced in. The questions will rather be: How high could rates ultimately go and how quickly will officials move to get there. The Fed’s dot plot of rate projections will thus play a key role.

Apart from the Fed, the Bank of England is also widely expected to hike 25bps for a third straight meeting on Thursday.

What do we expect technically in both EUR/USD and GBP/USD pairs?

In the run-up to Wednesday’s FOMC decision we anticipate further USD strength with lower targets seen at 1.0730-1.07 in the EUR/USD and 1.2970-1.2950 in the GBP/USD.

GBP/USD: If 1.2950 holds, the cable may recover some losses towards 1.32 on a hawkish BoE.

EUR/USD: If the euro is unable to break above 1.1050, chances remain in favor of the bears with next lower targets seen at 1.07 and 1.0640.

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.