EUR/USD Hovers Around Parity as Markets Digest Recent Fed & ECB Commentary

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EUR/USD Analysis

The common currency hit the lowest level since December 2002 early last week (0.9899), but has since managed to find support, despite the negative reaction to Mr Powell's speech at Jackson Hole on Friday [1].

The Fed Chair kept the door open to another "unusually large" rate hike in September, but also repeated that that the pace of increases could slow "at some point", without going against the June projections for median rates of 2.4% by the end of the year.

He did however try to prepare markets that rates will likely need to remain elevated, saying that "Restoring price stability will likely require maintaining a restrictive policy stance for some time" and stressed the bank's commitment to bring down inflation.

After the speech, markets became more aggressive in the rate pricing, with CME's FedWatch Tool now projecting another 75 basis point rise in September with 70.5% probability and seeing rates at 4% by the end of the year. [2]

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The European central Bank also went on the offensive, with various officials delivering hawkish remarks. Most notably, Ms Scnhabel, who called for a continuation of the tightening path "even if we enter a recession" and Mr Kazaks who is willing to discuss a 0.75% move according to Reuters. [3], [4]

We have also starting to see some pushback against the weak Euro, with Mr Rhen for example saying on Bloomberg that "certainly we are monitoring the exchange rate", which is "indirectly influencing inflation, especially because its making the energy imports more expensive". [5]

This hawkish rhetoric supports EUR/USD this week and we could see further rebound towards the key 1.0108-15 region. Daily closes above the EMA200 are required for the downward bias to ease, which will likely need fresh catalyst. The upside still looks unfriendly though, as the daily Ichimoku and the descending trendline from the 2022 highs loom.

The pair draws to the close of its third straight negative month and below the EMA200, it is still in risk of new lows towards 0.9858, although 0.9684 looks distant in the near-term.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 29 Aug 2022 https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm

2

Retrieved 29 Aug 2022 https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html#

3

Retrieved 29 Aug 2022 https://www.reuters.com/markets/us/ecb-needs-act-forcefully-against-inflation-maintain-trust-schnabel-says-2022-08-27/

4

Retrieved 29 Aug 2022 https://www.reuters.com/business/ecb-needs-another-big-rate-hike-september-kazaks-says-2022-08-27/

5

Retrieved 10 Dec 2022 https://www.youtube.com/watch

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