EUR/USD: selling on an upward pullback

EUR/USD, currency, EUR/USD: selling on an upward pullback

FOREX Fundamental analysis on September 15, 2022

Within a month, stock markets have managed to step on the same rake twice. Investors blindly believed that the Fed would pause in its tightening of the monetary policy. Unfulfilled hopes caused the S&P 500 to plummet 9% in August and its worst daily performance since June 2020 in September.

If it happens once, it's an event, if it happens twice, it's a trend. It is possible that this year we will see another illogical rise in the indices, followed by a collapse and huge losses for traders.

Unlike the markets, the Fed cannot afford to be wrong. While investors wait for a rate cut in 2023, though they are already resigned to the fact that the rate will reach 4.3% at the end of the year, the Fed will continue to fight inflation, bearing in mind the experience of Paul Volcker, who took over as head of the regulator in 1979. Back then, uncontrolled price increases forced the Central Bank to raise the rate to 17% by April 1980. However, the discontent of large companies, primarily automakers, investors and fund managers forced Volcker to retreat and lower the rate to 10%, even though inflation had reached the 12% mark. As a result, the Fed had to hike the rate to 20% in an emergency and plunge the United States economy into the deepest recession since World War II.

This sad example keeps today's Fed leadership from going after the markets. The Central Bank intends to beat inflation on the first try, albeit with a minor downturn in the economy.

It is entirely possible that the Fed's projections after the last inflation report will show a 4.5% figure for rates at the end of this year. And here, the figure is likely to remain for all of next year. Together with other regulatory mechanisms, this will keep U.S. bond yields rising and help the greenback strengthen.

But no matter how optimistic Jerome Powell is about the future, it is unlikely that the US economy will be able to avoid a recession. That means the dollar is once again feeling like a fish in water.

"The EUR/USD bearish trend remains in force. Markets are waiting for the FOMC meeting on September 21. In the meantime, let's keep selling from 1.018 and build up short positions from an upward correction. In any case, so far the pair is holding below parity level.

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Symbols EUR/USD

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Forex analysis EURUSD: the dollar is stumbling more and more
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Mar 22, 2023 Read
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