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May 03 - 05:55 PM

EUR/USD - COMMENT-Prospect Of A Fed Pause Leaves EUR/USD Longs Wanting

By Christopher Romano  —  May 03 - 03:40 PM

EUR/USD rose to a 5-session high on Wednesday after the FOMC hiked rates by 25 bps as expected and appeared to leave the door open to a pause, but the Fed's reluctance to more definitively signal a halt to tightening clouded, at least momentarily, an otherwise bullish outlook.

The dollar and yields US2YT=RRSRAU3 dropped immediately after the statement, but the EUR/USD highs proved fleeting, with longs reluctant to push through 1.1100 barrier protective offers.

Though the Fed's statement no longer says it anticipates further policy firming, it left the issue open, saying it would take into account tightening to date, policy lags and other developments to decide if further hikes are needed.

That appeared to fall short of the clear signal for a policy pivot after more than a year of hikes.

Tempering the impression of a hawkish hold, however, the Fed said tighter credit conditions, likely stemming from the current banking stress, should weigh on the economy, employment and inflation.

But, robust job gains and elevated inflation were noted by the Fed, which could also provide reason to hike again.

Fed Chair Jerome Powell's presser closely echoed the policy statement, though he did say a decision on a pause was not made at the meeting.

EUR/USD held near 1.1050 during the presser and traded up near +0.50% which reinforced already bullish technicals.

Rising daily, monthly RSIs and May's monthly bull hammer give longs the advantage, but longs appeared to have been hoping for more help from the Fed.

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Refinitiv IFR Research/Market Commentary


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