FX.co ★ There is no point in raising the interest rate by 0.5%

Philadelphia Fed Patrick Harker recently said he doesn't think the US is moving into the recession. American comments politicians this week wear restrained character, though optimism and a bright look into the future, continue to be felt. The market situation I've been to bed quite a while now complicated, and most likely Harker was saying that's exactly what it's about.

Back on Monday, the yields of 5-year and 30-year US Treasury bonds showed an inversion for the first time since 2016. Historically, this inversion is a sign of an approaching recession. However, investors largely ignored this event, as the yields of 2-year and 10-year bonds are still normal. Harker noted that despite concerns about the inversion of yields on 10-year and 2-year treasury bonds, which was a harbinger of previous recessions, the potential of the economy is quite large.

As for interest rates, the Fed representative said that he is still open to a more aggressive policy in the future, but so far he is only in favor of an increase by a quarter of a percentage point in May. "I would not refuse to raise the rate by 50 basis points in May, but there is no need for that yet," Harker said.

As noted above, we should not expect an economic recession in the near future, since, according to the president of the Philadelphia Federal Reserve, the current state of the economy is strong enough to withstand both the tightening of monetary policy and the concerns emanating from the bond market. "I'm looking for a safe landing," he said in an interview. "We are landing safely, but this will be a more exciting landing than anything before. For this reason, we are being cautious and trying to weigh all the decisions made regarding monetary policy more seriously."

Harker also touched on statistics and noted that the data and expectations of the recession are going in different directions. He did not rule out that there is a causal relationship, of course, but before making more serious decisions, you need to make sure that all other scenarios are not suitable for solving the problem. As I noted above, the inversion of the yield curve is considered very important because it reflects investors' concerns that the Fed is tightening policy too much and raising interest rates, which will limit further growth of the market and the economy.

Despite all the actions of the Fed, unemployment in the US has already returned almost to the level it was before the pandemic. Consumers still have plenty of cash, and the value of real estate continues to rise - this is another proof of a healthy economy. All that remains for the Fed now is to overcome inflation, which has reached a 40-year high. Harker noted that, in his opinion, the Fed at its May meeting should raise the base rate by only a quarter of a percentage point, or 25 basis points. However, at the moment, the markets expect an increase of 50 basis points - this is what Fed Chairman Jerome Paeull said last week.

As for the technical picture of the EURUSD pair

Geopolitical tensions around Russia and Ukraine remain quite high, even despite the recent breakthrough in negotiations. Given the aggressiveness of the Fed's policy, it is best to bet on further strengthening of the dollar. To maintain the bull market, euro buyers need a break above 1.1160, which will allow the correction to continue to the highs: 1.1200 and 1.1230. In the event of a decline in the trading instrument, buyers will be able to count on support in the area of 1.1100. Its breakdown will quickly push the trading instrument to the lows: 1.1070 and 1.1030.

As for the technical picture of the GBPUSD pair

The pound is stuck in a wide side channel, and for the bulls to continue to grow, they need to think about how to return the resistance to 1.3160. This can be done after a confident defense of the support at the base of the 31st figure, which also needs to be thought about carefully. In case of a breakdown of this range, the nearest major supports will be seen in the areas of 1.3060 and 1.3003. It will be possible to talk about the continuation of the bull market only after the breakdown above 1.3160, which will lead to an instant jerk of the pound to the highs of 1.3190 and 1.3220.