FOREX Fundamental analysis on September 1, 2022.
The strengthening of the dollar across the market drags down the rates of all currencies except for the European one. The continuous growth of the US bond yields, the collapse of the stock indices, the tight Fed policy and the energy crisis in the Eurozone should seem to indicate EUR/USD the only right direction of the trend. In fact, the pair does not want to fall below the parity level, making attempts to test the resistance at 1.010.
Surely market participants believe in the hawkish shift of the ECB, believing that after the record high in inflation at 9.1% the regulator should just start an aggressive tightening of monetary policy.
Investor sentiment was boosted by Joachim Nagel, head of the Bundesbank, who said the ECB needs several strong rate hikes. On the futures market, the probability of a monetary tightening by 75 basis points in September is rising day by day.
However, will this scenario be good for the Old World economy? The growth of inflation in the Eurozone is mainly due to the strong rise in energy prices, and the ECB is powerless here. Another thing is that a move to a hard rate would intensify the Euro bloc's recession, which would lead to a further collapse of the EUR/USD.
Most likely, the reasons for the euro's stability lie in the gas market. While the futures on the "blue fuel" are stabilizing the European currency will be trying to recover its losses.
At the same time, it is quite possible that the ECB will hold a rate hike of 75 basis points not only in September, but also in October at a time when the Fed will start to slow the rate of monetary restriction. Here again, there are a lot of "ifs." If gas prices don't rise any more, if the Eurozone economy doesn't collapse into recession, if German bond yields rise faster than US bonds....When these factors coincide, EUR/USD will head for a correction.
Of course, the scheduled resumption of the Nord Stream and hopes for a hawkish surprise from the ECB might provoke a strengthening of the single currency, so at this time of forex trading we allow buying EUR/USD as long as the pair stays above parity level.