Fundamental factors point to continued weakening of EURUSD

26 September 2023 132
Fundamental factors point to continued weakening of EURUSD

The EURUSD currency pair continues moving inside the downtrend. There is a sense of anxiety in the markets, which has been lingering since the Fed meeting last week.

The US Treasury bonds are declining as spending continues to rise. This will stimulate the issuance of new debt securities. The fall in US bonds is stimulating demand for the dollar.

Andrew Ticehurst, interest rate strategist at Nomura, is of the same opinion. According to him, the US dollar is a high-yielding asset and a safe haven. Andrew expects the strengthening of the US dollar to continue due to higher interest rates and lower risk appetite among traders.

The Fed has expressed its intention to continue tightening monetary policy. At this point, another rate hike is expected this year. With this in mind, deleveraging forecasts have been shifted to a later date, and the average values of the key rate for the next couple of years have been raised.

According to the regulator's officials, inflation in the country can be reduced without damaging the economy and causing significant job losses. In this case, there is no need to wait for a significant easing of the policy. This means that the US dollar may remain strong for a longer time than previously expected.

As ECB Chief Economist Philip Lane stated, interest rates have reached the level necessary to reduce inflation. However, they need to remain high for quite some time to have the desired effect.

Last week, the ECB raised interest rates for the 10th consecutive time. Many investors and economists widely interpreted it as the final step in an unprecedented campaign of monetary tightening. While President Christine Lagarde pushed back against such conclusions, several of her colleagues have since said they hope hikes are done.

Europe's economy is weaker relative to the US. Hints of further rate hikes had little impact on the euro. Investors do not believe the regulator's words.

According to the technical analysis, the EURUSD currency pair is moving within a downtrend. Negative sentiments continue to prevail in the market. At the same time, the breakout of the lower boundary of the trend and acceleration of the fall still can happen. There are some chances of a decline in the euro. The target will be a significant support at 1.052. A Stop-loss should be set in case of growth to the resistance and closer to the upper boundary of the trend, which corresponds to the price of 1.065.

Decrease in the EURUSD currency pair:

Take profit — 1.052

Stop-loss — 1.065

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

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