Investors’ appetite for buying the US dollar increased amid sharp statements from Federal Reserve policy officials that it will be hawkish in raising US interest rates throughout 2022. The bank’s officials, even Governor Jerome Powell, changed their tone of caution and emphasized opportunities to raise US interest rates strongly to contain record inflation, which has reached its highest in 40 years. Accordingly, the free collapse of the EUR/USD currency pair was natural, as the pair collapsed to the 1.0696 support level, the lowest in two years, and settled around the 1.0712 level at the time of writing the analysis.
Euro exchange rates did not make any lasting gains on the news of Emmanuel Macron's re-election as President of France on Sunday, with Macron receiving 58.5% of the vote, defeating rival Marine Le Pen. And while Macron's victory was largely expected by markets, closing any hedge on surprise would provide some initial rally in the eurozone currency. However, gains were recorded against the majority of the euro peers in the G10.
Commenting on the performance, Nigel Green, CEO of De Vere Group, said: "European markets and the euro are likely to see a comfortable rebound over Macron's re-election and his pro-business and pro-European agenda."
The markets were spared the shock and uncertainty that would have sent them into a tailspin if Le Pen had won, Green says, because it would have set France on a completely different path. "But this could be short-lived, especially since his victory has already been largely determined by the markets," the analyst added. “As the news spreads, attention will shift to other pressing geopolitical matters that will affect global markets.”
Despite Macron's victory, the far right still managed to secure its largest share of the vote ever, while voter turnout was close to record lows. Accordingly, the analyst comments, “The markets have avoided crashing with Le Pen's victory, but investors should not be complacent. There are still significant global headwinds that can negatively impact returns. However, volatility always brings enhanced investment opportunities.”
Any possibility of the rally offered by Macron's victory for the Euro could be quickly outweighed by other pressing issues facing investors that may ultimately benefit the Dollar. Investors will focus on the worsening COVID situation in China, the world's second largest economy. Accordingly, analysts say, the Asian power is facing the worst spread of the Covid virus since the beginning of the epidemic in late 2019, as major cities such as Shanghai were closed.
Risk appetite appears to be weak after the People's Bank of China (PBOC) rejected the opportunity to cut its policy rates today, despite the sharp economic downturn and recent calls from Beijing for monetary support. Accordingly, analysts see other factors leading to lower market sentiment include continued severe inflation, expectations of rate hikes from most major central banks, and the persistence of global uncertainty created by the Russia-Ukrainian war.
Future expectations for this week's trading from the euro to the dollar: surrounded by headwinds with the expectation of inflation data
The EUR/USD exchange rate hit a new two-year low early this week and could remain under pressure near the 1.08 level over the coming days as domestic and international headwinds subdue the single European currency. The European single currency did not benefit from the re-election of French President Emmanuel Macron on Sunday and instead fell to nearly 1.07, its lowest level since April 2020.
There is a clear disregard on the part of Forex traders after the losses of the EUR/USD pair for the technical indicators reaching oversold levels, as the factors of the currency pair’s weakness continue. The policy of global central banks led by the US Federal Reserve, and recently, fears of another COVID outbreak, joined these factors. The bears' control over the performance of the EUR/USD is still continuing, and accordingly, the currency pair is subject to testing stronger support levels, the closest of which are currently 1.0645 and 1.0530.
On the upside, and according to the performance on the daily chart, the EUR/USD pair needs to stabilize above the 1.1000 level to have a chance to rebound. However, until this moment, any gains in the EUR/USD will remain an opportunity to sell again. As long as the weakness factors mentioned above exist. Today, the euro-dollar does not expect important European data, and from the United States, durable goods orders, US consumer confidence and US new home sales will be announced.
