21.03.202214:55 Forex Analysis & Reviews: The growth of the Fed's aggressiveness will support the US dollar in the near future

The European currency has not found the strength to get above the resistance of 1.1065, which indicates clear bearish prerequisites for the market in the short term. The strong rebound of the euro up does not seem as serious as many say, but a lot of news limiting the upward potential of the pair continues to affect the mood of market participants. And although the Federal Reserve System did not signal a more hawkish policy last week, demand for the US dollar is not going anywhere in the near future - especially given the lack of progress in the negotiations between Russia and Ukraine.

One of the governors of the Federal Reserve System, Christopher Waller, said recently that the Central Bank may have to go for more aggressive interest rate hikes - by 50 basis points this year to curb inflation. Although he voted to raise the rate by only 25 basis points due to uncertainty related to the conflict between Russia and Ukraine, Waller noted that, in his opinion, the Fed may soon have to act more sharply. "I advocate an accelerated rate hike because we need to fight prices more actively if we want to affect inflation at the end of this, and also get on the right course next year," he said. "I believe that several larger interest rate hikes of 50 basis points at one or more meetings in the near future would be the right decision."

In addition to raising rates, Waller said that the Fed needs to start reducing its balance sheet in the near future, which is already inflated to an indecent size. The Central Bank's balance sheet is just over $ 9 trillion, and officials said recently that the start of its reduction will begin in the "near future," without specifying at what time. According to Waller's hints, the process should begin at the next meeting of the committee, although the decision may be postponed to a later meeting. "Now the balance of the Central Bank and the economy are in a perfect position. Inflation is raging, it requires a response." Waller noted that now more than ever it would be right to start reducing the balance sheet since the withdrawal of a huge amount of liquidity from the system will not cause much damage to the economy.

His colleague in the role, St. Louis Fed President James Bullard, agrees with Waller's opinion. "The Fed should raise rates by a total of at least 300 basis points this year," Bullard said during his speech. He was the only politician at last week's meeting who voted against a quarter-point increase, saying that the Fed should have raised rates by half a point immediately as part of a deliberate policy aimed at curbing inflation, which has reached a 40-year high. It is worth noting that before the meeting, Waller also insisted on a 50 basis point increase, but then changed his mind.

Let me remind you that last week the Federal Reserve raised interest rates by a quarter of a percentage point and announced plans to hold six more such increases this year. Thus, the Fed launched a campaign to combat the highest inflation in four decades. It has already been saying a lot that such actions create quite serious risks for future economic growth, but for the Central Bank, inflation is the number 1 problem right now.

As for the technical picture of the EURUSD pair

Euro bulls, though, aimed at 1.1060, but every time they approach this level, activity decreases. The geopolitical tensions around Russia and Ukraine have decreased slightly, but there is no progress in the negotiations, and the military special operation continues. Refusal to surrender Mariupol may force the Russian army to act more aggressively. Euro buyers need to consolidate above 1.1060, which will allow the correction to continue to the highs of 1.1120 and 1.1165. The decline of the trading instrument will be met with active purchases in the area of 1.1010. However, the key support level remains the 1.0960 area.

As for the technical picture of the GBPUSD pair

The British pound has already fallen into the support area of 1.3140, and the bears are aimed at breaking it. The dovish rhetoric of the Bank of England last week put the British pound back in a difficult position against the US dollar. Now the bulls need to think about how to defend further. The nearest major support is seen only in the areas of 1.3090 and 1.3040. It will be possible to talk about the resumption of the bullish correction only after the breakdown above the base of the 32nd figure, which will lead to an instant jerk of the pound to the highs of 1.3270 and 1.3330.