EUR – Interest Rate Hike Expectations Rise Sharply, Dollar Gains

New Fed Chair Kevin Warsh's debut sent strong hawkish signals: the dot plot showed nine officials expecting rate hikes this year, and the statement was significantly streamlined and focused on inflation. The dollar rose significantly, with the dollar index briefly surging to 100.57, as the market digested expectations of a policy shift. Warsh's first time chairing a policy meeting as Fed Chair sent a series of strong signals, from a significantly shortened policy statement to five working groups that could reshape the central bank's architecture, and the dot plot's sudden shift towards rate hikes. The actual outcome of the meeting was more hawkish than the market anticipated, exceeding most investors' expectations. This shift not only reflects the Fed's high vigilance regarding inflation risks but also marks a clear adjustment in the path of monetary policy.

The latest summary of economic projections shows that nine Fed officials expect at least one more rate hike this year, a dramatic reversal from zero forecasts three months ago. At that time, most officials still believed that interest rates could remain stable or even begin a rate-cutting cycle this year. In their statement, Federal Reserve officials emphasized that they will maintain higher interest rates for a longer period, based on data, to ensure that inflation steadily falls back to the long-term target of 2%. This post-meeting statement was significantly simplified than previous ones, with the core message being that "the Federal Open Market Committee (FOMC) will achieve price stability," while deliberately omitting previously used phrases such as "supporting the labor market to maximize employment." This significant omission in wording clearly signals a strong shift in policy balance towards curbing inflation.

The euro fell to 1.1477 against the dollar on Wednesday. Technically, the exchange rate had previously broken below the upward trendline support, which can also be considered the bottom of a triangle pattern formed this year, thus there is a high probability of a new round of decline. The next supporting level is expected to be at 1.15, a level that was just barely held last week. Key levels to watch are the March's low of 1.1410 and the August 2025 low of 1.1391. However, caution is advised; a break below this level would break the nearly year-long bottom of the range and could trigger a more destructive decline, with initial targets at 1.12 and potentially 1.10. Resistance will be seen at 1.1620, followed by 1.1660, which is the neckline of a previous double-top pattern and also the 50-day moving average. A return above this level could suggest a stabilization for the euro. The subsequent resistance is expected at the downtrend line at 1.1680.

Forecast range:
Resistance 1.1620 - 1.1660* – 1.1680* - 1.1800
Support 1.1500 – 1.1390* – 1.1200 – 1.1000

News Summary
15/6
Germany May Wholesale Price Index MoM -0.6%, YoY +5.9%
Eurozone April Industrial Production MoM +0.1%, YoY +0.3%
Eurozone April Seasonally Adjusted Trade Balance: €1.3 Billion Surplus
Eurozone April Unadjusted Trade Balance: €1 Billion Deficit

17/6
Eurozone May Core HICP YoY +2.6%, MoM +0.3%
Eurozone May HICP YoY +3.2%, MoM +0.1%

Focus:
Friday
Germany May PPI (14:00)

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