Fed tightening pushes EURUSD to the beginning-of-the-year lows

21 September 2023 152
Fed tightening pushes EURUSD to the beginning-of-the-year lows

Like many other financial instruments, the EURUSD currency pair experienced increased volatility during yesterday's trading session. The bulls pushed the pair above the 1.073 level, only to be met with strong resistance from euro sellers and dollar buyers. Eventually, by Wednesday evening, EURUSD lost all of its daily gains, and this morning it has already updated the lows of mid-March. At this rate, it won't take much time for the bears to reach 1.055.


Yesterday's central event was the sixth meeting of the Federal Reserve in 2023. In accordance with the expectations of market participants, the American regulator did not raise the level of interest rates, and left it in a range of 5.25% to 5.5%. Much more interesting were the comments by Jerome Powell and his colleagues, who promoted a new wave of the dollar's strengthening.


The Fed revised its economic forecasts. It improved expectations for GDP growth and worsened expectations for inflation. As a result, the U.S. economy may need tight monetary policy for a longer period of time than previously expected. According to the regulator's representatives, the fight against inflation may drag on until 2026.


According to media reports from the meeting, more than half of the Federal Open Market Committee (FOMC) members are in favor of another rate hike in 2023. Moreover, their forecast rate range for the end of 2024 raised from 4.5-4.75% to 5-5.25%. In other words, the Federal Reserve officials expect only 2 steps to ease monetary policy next year.


While the U.S. regulator remains hawkish, the rhetoric of the European Central Bank representatives gets softer. Pablo Hernández de Cos, a member of the ECB's Governing Council, talked about the gradual decline in inflation in the EU to the 2% target while maintaining the current level of interest rates. Such a position of the ECB officials is an important factor for the EURUSD decline.


Despite the stable EURUSD downtrend, which has been lasting for more than 2 months, the technical indicators do not show excessive oversold conditions. That is why further decline in quotes to the level of 1.055 may happen in the next few days.

 


The following trading strategy may be offered:


Sell EURUSD in the range of 1.063-1.065. Take profit – 1.055. Stop loss – 1.07.

This content is for informational purposes only and is not intended to be investing advice.

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