If the market does not go in the direction it is expected to be seen, it is more likely to go in the opposite direction. Will this principle of technical analysis work in the case of EURUSD? The main currency pair has been trying to break above 1.09 for many days but neither the growth of American stock indices nor pleasant surprises from European business activity or disappointing statistics on the United States help the bulls. Is it time for a correction?

In fact, the swinging of EURUSD like a pendulum in different directions on the eve of the most important events of the week by February 3 looks logical. The meetings between the Fed and the ECB will clarify the situation. The main thing now is not to rush into the thick of it, and investors prefer to take a wait-and-see attitude.

On paper, the views of both regulators have already been outlined. Many Fed officials are talking about a 25 bps hike in the federal funds rate to 4.75%, with CME derivatives giving a 99.8% chance of that outcome. In contrast, European Central Bank officials are pushing for a 50 bps increase in the cost of borrowing, and the derivatives market agrees with them. It expects a 90 bps increase in the deposit rate at the next two Governing Council meetings. The other thing is, what happens after February?

Christine Lagarde was wrong at the beginning of the cycle when she argued to start with two 25 bps rate hikes. This position is now recognized as too slow, even by the German government. Its economic advisers recommend that the ECB not be hampered by excessive fiscal stimulus and praises its decisiveness after a slow start.

The futures market expects to see the eurozone's borrowing cost peak at 3.4%, a figure that is close to true given Lagarde's words in December that the market underestimates the central bank's resolve.

Dynamics of the expected rate on ECB deposits

The problem for the euro is that derivatives believe rates will return to their current levels by the end of the year. That is, they predict a "dovish" reversal of the ECB. Indeed, if monetary policy depends on data, and inflation in the euro area begins to slow quickly, why wouldn't the central bank loosen its monetary policy?

However, it will be possible to talk about this at the middle of the year. In the meantime, investors are interested in the question, if the ECB fails to move the EURUSD significantly higher with the help of "hawkish" rhetoric, will the pair go for a correction? The speeches of the representatives of the Governing Council convince that the rhetoric will definitely be hawkish. Clearly dissatisfied with Bloomberg's insider that the central bank is considering slowing down the speed of monetary restriction, they rushed together to convince the financial markets of this.

Technically, the picture in the EURUSD pair hasn't changed: there is a struggle for the upper limit of the fair value range 1.063–1.089. If it remains in the hands of the bulls, the chances of a continuation of the rally towards 1.095 and 1.104 will increase. On the contrary, the bearish victory will open the door for the euro to correct.