FOREX Fundamental analysis on September 8, 2022
After the memorable speech of Jerome Powell at the symposium in Jackson Hole the market finally believed in the "hawkish" course of the Fed. The probability of a 75 basis point rate hike in September now exceeds 80%. It would seem that EUR/USD should fly like a bird in the direction of 0.95, but any trend needs correction. No sooner had Lael Brainard spoken about the bilateral risks of a rate hike than the buyers of risky assets immediately went on the offensive, taking with them the main asset of the currency market.
Once again, investors took the phrase out of context and believed what they wanted to hear. The Fed Vice Chair said only that at some point the regulator would have to choose between raising and lowering rates. But that, Lael Brainard stressed, won't be soon. First, the Fed should make sure that inflation is falling steadily toward the 2% target.
In other words, there was nothing in Lael Brainard's statement that would change the views of market participants or the positioning of assets in forex trading. Nevertheless, the long "bearish" trend tired the investors, and they considered the statement of the FOMC member as a sufficient reason to begin the correction. Treasury yields began to decline on Wednesday, which dragged the dollar down with it.
It is very likely that EUR/USD correction will develop as ECB seriously intends to raise its rate by 75 basis points at once, though European regulator is in the position that any action it takes will only complicate the situation. If it raises the rate, it will deepen recession in the Eurozone economy, if it does not - it will depreciate the euro against the dollar and exacerbate not only the inflation acceleration, but also the energy crisis.
I do not think that Christine Lagarde will be able to surprise the market, so I will continue to stick to the tried and tested methods of Forex trading: above 0.995 - short-term buying of the pair with the target zones 1.005 - 1.007; 1.012 - 1.04 and 1.018, where we sell in the medium term with the near-term target of 0.97