FOREX Fundamental Analysis on September 14, 2022.
The acceleration of U.S. core inflation from 5.9% to 6.3% has shaken financial markets. Surely the Fed must do even more to combat rising prices, regardless of the high risks of a recession. The likelihood of an economic downturn collapsed stock indices, and through currency correlations, risky assets, including EUR/USD.
Indeed, stock buyers were overconfident, believing that the Fed would stall monetary policy tightening. The stock market has stepped on the same rake twice in a row. Less than a month apart. Well, as they say, "repetition is the mother of learning"!
Nevertheless, some analysts forecasted a bullish trend for the S&P 500, though the Fed did not abandon its hawkish course. According to the FactSet forecast, the corporate profits of American companies were to decline by 5.5% on average in the third quarter.
At the same time, the dollar index recorded its best gain since March of this year. The probability of a 50 basis point Fed rate hike in September fell to 0%, but rose 0.1% to 34%. Moreover, Nomura considers a 100 basis point rate hike to be the base case.
It is not certain that the Fed will dare to take such a bold step, as it would be more like a panic action with uncontrolled inflation growth. But 50 basis points will hardly satisfy the regulator. The futures market predicts that the federal funds rate will rise to 4.3% by early 2023. This means that the EUR/USD downtrend persists.
It's possible that after yesterday's attack, the bears will take a break until the results of the Fed meeting on September 21 are released. Let's keep selling from 1.018 and build up short positions on an upward pullback. The target is 0.97.