FOREX Fundamental Analysis on September 20, 2022
Apparently, investors have once again found an old rake. On the eve of the FOMC meeting at which in any case the rate will be raised, and not less than by 75 basis points, the stock indices are rising, and through the correlation of currencies and indices, the risky assets got support. But it's not just the S&P 500 rally that keeps EUR/USD above parity.
A 100 basis points decline in the probability of a rate hike in September from 38% to 19% cooled the fervor of EUR/USD sellers. Nevertheless, the dollar is still strong in forex trading, but the euro is getting stronger against the background of the declining gas prices. The current price of the "blue fuel" is 45% lower than the maximum in August. This is definitely a positive aspect for the European currency, though not stable.
Reducing the risk of an energy crisis has reduced the likelihood of a recession in the Eurozone, untie the hands of the European Central Bank. There are already hawks on the Governing Council who believe that a slowdown in economic growth should not hinder the fight against inflation. It is possible that the ECB, like the Fed, will sacrifice the economy to fight the rampant price increases.
But, it is still early fall, and EU gas demand will rise as the cold weather approaches. A freezing winter will be a real test for both Europeans and the Eurozone economy. In 2022, the cost of "blue fuel" is 7 times the average, which is a strong boost to inflationary growth and a constant threat of recession, the probability of which has risen from 60% to 80% over the next 12 months, according to Bloomberg. This makes it very difficult for the ECB to tighten its monetary policy. Experts believe that the European regulator will not raise the rate above 2%.
So, the fundamental background will not allow the European currency to strengthen. The maximum that the buyers of EUR/USD can count on is a prolonged upward correction. The duration of strengthening of the pair will largely depend on the decision of the FOMC tomorrow. It is not inconceivable that the Fed will once again punish the investors who decided to go against the course of the American regulator. If EUR/USD fails to break above 1.005; 1.007 and 1.00yo12, we will resume selling to 0.97.
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