Published on 25.01.2022 10:23

The Euro is back under pressure against the U.S. dollar as we enter today’s trading session as investors seek out safe haven currencies on the back of a potential conflict between Russia and potential military conflict and Ukraine and expectations that the US Federal Reserve may need to be more aggressive with regards to tightening monetary policy.

The Fed will kick off a two-day policy meeting later in the American trading session which will culminate with an interest rate decision and monetary policy statement tomorrow and the focus of traders will be on any hints on the timing and pace of rate hikes.

No changes in rates are expected tomorrow but a 25-basis point hike next month is fully priced into the market so the big question now is how many further rate rises the Fed will deliver this year and how quickly will they come.

If the Fed follow up with another rate rise in April, the greenback is set to benefit significantly at the expense of the Euro as investors seek out the higher yielding currency.

"The case for the Fed potentially following up a March rate rise before the June meeting, even as early as April, is a very compelling one, and there is a risk that the market will still have to reprice," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

Looking ahead today, we may see some movement in the EUR/USD currency pair with the release of the IFO business climate index from Germany and later in the afternoon, the consumer confidence figures from the US

As we can see on the chart, the EUR/USD currency pair continues to trade within the trading range between $1.1286 and $1.1356 and it is likely to remain here today as the market awaits news from the US Federal Reserve tomorrow.

Depending on how bullish the Fed comes across, and how many rate hikes they portray to the market, we are finally likely to see a significant breakout from this trading range and as things stand now, it is likely to be to the downside.