It wouldn't be worse. This principle should be guided when things go wrong. It would seem that what could spoil the already terrible mood of the bulls on EURUSD due to expectations of an increase in the federal funds rate? The answer did not take long to wait. Russia's statement on partial mobilization, which is regarded as an escalation of the armed conflict in Ukraine, inflated the demand for safe haven assets and pulled down the euro below $0.99.

The decisions taken by Moscow dealt a double blow to EURUSD. On the one hand, gas prices are rising, as threats to the transport flows of blue fuel are increasing. On the other hand, due to the territorial remoteness of the United States from the conflict zone, their currency looks better than the euro. Indeed, after a decline of 45% from the levels of August peaks, gas futures quotes in Europe are rising for the second consecutive day and are still seven times higher than their typical seasonal level. Thanks to 86% storage capacity, the situation looks manageable. But it can get worse at any moment.

Due to the energy crisis, the American economy looks better than the European one and is ready to withstand another increase in the federal funds rate. The futures market believes that it will grow by 75 bps, up to 3.25%. At the same time, the updated FOMC forecasts are likely to drop borrowing costs by 4% by the end of 2022 and 4.5% by mid-2023.

Dynamics of the probability of a Fed rate hike

It is difficult for the US dollar not to grow when the yield of 10-year inflation-protected TIPS bonds exceeded 1% for the first time since 2018, and the rates on treasury bonds with a similar maturity exceeded 3.5%, which has not happened to them for 11 years. At the same time, the yield of German debt obligations is in no hurry to rise. Their holders do not want to get rid of securities in the conditions of their shortage in the market caused by the implementation of the European Central Bank's quantitative easing program. ECB President Christine Lagarde and her colleagues urgently need to switch to QT in order to prevent the development of a liquidity crisis.

Theoretically, the implementation of the principle "buy the dollar on rumors, sell on facts" in the event of a 75 bps rate hike, which is what financial markets expect, may lead to a EURUSD rally. However, it is likely to be short-lived. If it takes place at all. The bears on the main currency pair have such a trump card as the updated FOMC forecasts, and they are able to provide more help to the US currency than an increase in borrowing costs.

Thus, the escalation of the geopolitical conflict in Eastern Europe, rising gas prices and an aggressive Fed create a solid foundation for the continuation of the downward trend in EURUSD.

Technically, on the 4-hour chart of the pair, the bulls managed to repel the first assault of support at 0.99. It corresponds to the 88.6% Fibonacci level from wave 4-5 of the Expanding Wedge pattern. The bears' second attempt may be more successful than the first. Recommendation – sell at the breakdown of support. Closing the day below 0.99 will increase the risks of the EURUSD peak to 0.97 and 0.95.