At the beginning of January, EUR/USD does not seem to match expectations. In the current situation, the US dollar should rise against the euro. Hawkish board members of Lael Brainard's FOMC such as Patrick Harker and James Bullard hint at four interest rate increases in 2022. The Fed representatives are discussing the reduction of the Federal Reserve's $8.9 trillion balance sheet. All these factors should in theory push the US dollar and the yield of the US treasury bonds up. However, USDX is on the downturn, while the US treasuries market is rallying.

Yield of US treasury notes:

Some analysts compare the actions of the Federal Reserve and the European Central Bank. The Federal Reserve was the first to enact monetary stimulus measures. The Fed's QE in spring 2020 dwarfed the ECB's emergency asset purchases. The US regulator then sharply decreased the interest rate. Even four increases in 2022 would not return the Fed funds rate to its pre-pandemic level. The European Central Bank, on the other hand, did not change interest rates at all.

Others assume that the Fed's stimulus was the main driving force behind the massive US stock market rally of 2021. A slower US GDP growth, falling corporate revenues and the Fed's hawkish policy shift are expected to put an end to the rally, weakening USD and leading to capital outflows.

In another scenario, an extreme interest rate hike this year would slow down the US economy and inflation excessively, forcing Jerome Powell and the Fed to loosen the monetary policy.

USD positioning is deeply in net-long territory. Traders close their positions in the US currency, giving support to EUR/USD.

If the pair breaks above the upper limit of the consolidation range of 1.122-1.138, it could lead to a correction which could break the current downtrend. If EUR/USD breaks the resistance at 1.15, its rally towards 1.156 and 1.16 could continue. Short positions could be opened if the pair bounces off this level downwards or dives below 1.1435.

EUR/USD, daily chart