FOREX Fundamental analysis on September 19, 2022
Lower gas prices and hawkish comments of the ECB Council members allowed the "bulls" EUR/USD to return the pair to the parity level. However, the buyers didn't manage to stay around 1.00 for a long time. Traders are fixing positions on the eve of the FOMC meeting.
The committee on open markets will make a decision on an interest rate in the conditions of an inversion of yield curve, falling of stock indexes and unceasing strengthening of dollar. 70% of experts surveyed by MLIV Pulse believe Treasury yields will be higher than today's levels in a month. 61% of respondents believe that the dollar has not yet reached its growth target. The BofA assures that the greenback will begin to weaken only after a sustained decline in inflation.
According to the Financial Times, the 20 largest central banks in the world have raised rates by 860 basis points since the beginning of the year, with derivatives predicting that the rate of monetary retrenchment will increase before the end of the year. The futures market expects the ECB to raise rates to 2% and the Fed to 4.5%. Regulator monetary policy rate divergence remains a long-term driver of the EUR/USD decline.
The Fed has projected that borrowing costs will rise to 3.8% at the end of 2022. However, the recent U.S. inflation report suggests that the Fed will have to revise the estimate upward.
On Wednesday, markets will learn the outcome of the FOMC meeting on which the greenback's outlook depends. For now, the dollar is the king of forex trading, although its strengthening is not satisfactory for everyone. Developing countries will have to repay $83 billion in debt in 2023, which is no easy task at all given the current exchange rate.
But the Fed, as usual, does not care about others. It is fighting inflation and will stop at nothing. Hence, we continue to sell EUR/USD towards 0.97.