FOREX Fundamental analysis for EUR/USD on February 23, 2023
Eurozone business activity indexes have allowed investors to hope for an increase in the ECB interest rate to 3.75%. Nevertheless, the European currency did not move to strengthen, as the U.S. stock indices are against it.
The stock market is dominated by Fear, caused by the hawkish Fed rate. The VIX volatility index, known as the "fear index," is moving in parallel with the S&P 500. At the same time, the yield on 10-year Treasuries rose to nearly 4%. We can say that bonds were the first to believe in the Fed's intentions to continue the fight against inflation, although back in mid-February, strong US economic statistics supported the growth of stock indices. Now forex trading on the news is exclusively in favor of the dollar.
More and more FOMC members are voicing the need to raise the rate to 5.5% - 6.0%, with a 50bp monetary tightening in March at once. This broadens the horizon for a stronger greenback, especially since the collapse in stock indices suggests that investors have finally given up on the idea of a "dovish" Fed turnaround.That the Fed intends to pursue a hawkish course was also confirmed by yesterday's FOMC minutes. However investors didn't learn anything new from them.
The bulls' attempts to strengthen EUR/USD during Thursday's Asian session ended in vain and the pair, failing to consolidate above 1.06, turned down.
Today (1:30 p.m. GMT) the markets are waiting for the U.S. fourth quarter GDP data, the jobless claims report and the personal consumption expenditures index. The reports are expected to be good, which will allow the dollar to continue strengthening.
In addition, the European currency strengthened after the release of the German inflation report, where the index rose from 8.1% to 8.7% in February. Inflationary pressures are intensifying in the Euro bloc, which has a negative impact on the European economy. At 10:00 GMT, the Eurozone inflation report will be released as a whole. If the rise in inflation continues, investors will intensify sales of the Euro.
We believe that EUR/USD will develop a downward movement and suggest to include a sell order in the trader's trading plan
EUR/USD remains under pressure and may not stay in the support area at 1.06. A breakdown of the February low will increase the risks of the pair's sell-off.
Sell-stop 1.0600 take-profit 1.0500 stop-loss 1.0640