The Fed will likely have to increase the base interest rate above 5.1% and then maintain it on this point till 2024 to fight the high inflation in the economy.
Presidents John Williams of New York FRB, Mary Daly of San Francisco FRB, and Loretta Mester from Cleveland made a hawkish statement showing that the Fed intends to ease the price pressure by all available means. According to Williams, he doesn’t forecast a recession, and he is ready to take all necessary measures to bring inflation back to the 2% target of the central bank. He also added that the peak of the interest rate might be higher than expected.
The ECB officials also said that the high rates would last longer than economists predict. However, the U.S. economy is now in a better state than the EU economy. Some economists say that the U.S. will avoid a recession next year.
Also, there are states inside the European Union that can’t service debt with stably high rates, for example, Italy. Besides, it is necessary to remember European problems with energy products, in case of a long-lasting cold the recession in the EU may accelerate.
On Saturday, the Italian finance and economy minister admitted in his statement that the possibility of another rate increase made by the European Central Bank (ECB) raises concerns about states with large debt, including Italy.
In his speech at the event in Rome, Giorgetti added that for several years Italy was benefiting from a situation with near-zero interest rates, but now the situation changes.
As a result, the ECB should start the easing cycle earlier to support countries with difficulties. In such a situation the dollar looks more interesting, as the U.S. economy looks more stable.
Technically, EUR/USD is traded near the Fibonacci level of 0.382 during the whole period when currency decreases. This level was tested in spring and summer. We will likely see the rebound to support in the form of a growing trend, where the 200-day Moving Average is located. This is a level of 1.044.
You can indicate the stop during the update of current local highs of 1.074.
Decrease of the EUR/USD currency pair:
Take profit – 1,044
Stop-loss – 1,074
This content is for informational purposes only and is not intended to be investing advice.