EUR/USD ticks higher to parity, lacks follow-through as traders await Fed’s Powell – by hareshmenghani EURUSD Recession Fed Majors Currencies
The greenback struggles to preserve its modest intraday gains and turns lower for the second successive day on Friday, which turns out to be a key factor lending support to the EUR/USD pair. The USD downtick could be solely attributed to some repositioning trade ahead of Fed Chair Jerome Powell's speech at the Jackson Hole Symposium, due later during the early North American session. That said, a softer risk tone, along with hawkish Fed expectations, could act as a tailwind for the buck.
The overnight optimism led by China's latest stimulus measures fizzles out rather quickly amid growing recession fears. Furthermore, economic headwinds stemming from the recent COVID-19 lockdowns in China temper investors' appetite for riskier assets, which is evident from a weaker sentiment around the equity markets.
The overnight hawkish comments by Fed officials reaffirmed bets for further interest rate hikes by the Fed. Policymakers, however, reserved their judgment on the size of the rate increase at the September FOMC policy meeting. Hence, investors will closely scrutinize Powell's remarks for clues about a 75 bpsrate hike move in September. This, in turn, will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the EUR/USD pair.
In the meantime, concerns about an extreme energy crisis in Europe, which could drag the region's economy faster and deeper into recession, could act as a headwind for the shared currency. This suggests that the path of least resistance for the EUR/USD pair is to the downside. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a bottom near the 0.9900 mark, or a two-decade low touched earlier this week.
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