The Federal Reserve and the European Central Bank will give their verdicts hours apart, but their purposes are different. If Fed Chairman Jerome Powell has to make a huge effort not to fuel a rally in stocks and weaken the US dollar, ECB President Christine Lagarde needs to do very little to keep the EURUSD uptrend going. The euro's appreciation restrains inflation by lowering import prices and, at the same time, helps lower gas prices. Lately, the eurozone economy has been enjoying some pleasant surprises thanks to falling natural gas prices.

The currency bloc's gross domestic product expanded by 0.1% in the fourth quarter, beating Bloomberg analysts' forecasts. Despite the decline in GDP in Germany and Italy, France, Spain and other countries pulled the eurozone out of the abyss. Its economy may go into deficit in the first quarter due to the decline in consumer activity, but thanks to the warm winter and falling gas prices, such a scenario no longer looks basic.

European GDP dynamics

The stability of the currency bloc and the absence of turmoil on its debt market are making things a bit easier for the ECB. After an unexpected spike in inflation in Spain, the hawks are ready to raise the rate by 50bp not only in February and March, but also in May. The futures market is confident that it will rise to 3.5%. Bloomberg believes that after the increase to 3.25%, the ECB will take a long pause to assess the consequences of monetary tightening.

It looks like Lagarde won't need to work very hard to push EURUSD higher. It's enough to hint that two half-point rate hikes won't be enough. Or she could just say that markets underestimate the determination of the ECB.

Powell's task looks much more difficult. Markets have factored in a 25bp hike in borrowing costs, to 4.75%, so the usual statements that the Fed's job is not yet done, or that the monetary tightening cycle is not over, are sure to cause a new surge in risk appetite. As a result, financial conditions will get even better, making it harder to fight high inflation.

The dynamics of financial conditions

What should Powell come up with? Say that the Fed might accelerate the speed at the next meeting? Without surprises, the U.S. stock market and EURUSD are able to rally in an amicable way.

The current anxious movement is a result of greed, which is sitting deep inside investors and is ready to burst at any time, and a little fear that Powell will find the words which will cut off the oxygen to the bulls of the S&P 500.

Technically, the EURUSD bears found the strength to test the lower limit of the 1.083-1.093 consolidation range, but as expected, it was more of a false start before the Fed meeting. Climbing above $1.086 will allow us to build up the previously formed long positions on the euro.