FOREX Fundamental analysis on September 13, 2022.
The unrestrained rally of the American stock indices, rumors of ECB rate hike to a neutral level of 2% and decline in gas prices are pushing the single currency up. But the dollar is not going to give up in forex trading. Despite expectations of a slowdown in consumer price growth from 8.5% to 8.0% in August, the odds of a 75 basis point Fed rate hike in September have risen above 90%, which is holding back an onslaught of EUR/USD buyers.
At the same time, the bulls are afraid of repeating the August situation, when EUR/USD fell to 20-year lows after the S&P 500 rose, but stock indices have apparently not learned any lessons from the recent history, although Wall Street analysts expect a decline of 5.5% on average in the third quarter of U.S. companies' profits. That's about the same as in April-May 2020, when the COVID pandemic knocked financial markets off their feet.
Investors are hopeful that inflation in the United States has passed its peak and will now slow steadily. The optimism is bolstered by declining home rents and gasoline prices.
Theoretically, the Fed is fine with this scenario, as it suggests that the central bank is doing well and can even afford to take a small break in September by raising the rate by 50 or even 25 basis points. In fact, the Fed needs at least three reports confirming a slowdown in inflation.
Most financial market experts believe that the Fed will continue its monetary tightening in November and December. By the end of the year, rates will rise to at least 4.0%.
In other words, the Fed's monetary tightening is serious and long while the ECB, fearing a deep recession, can hardly afford something similar. Given the difference in monetary policy rates, we believe the EUR/USD downtrend will continue. We hold the open from 1.1018 to sell.