FOREX Fundamental Analysis for EUR/USD on October 19, 2022
Despite the fact that both in the U.S. and in the Eurozone the main scourge of the economy is high inflation, the nature of this phenomenon in the Old and New World is different. In the United States inflation has reached 6.6%, the highest level in 40 years. In the Eurozone, it is less than 4.8%, but consumer prices are higher than in the U.S. The main trigger for European inflation remains the cost of energy. In the U.S., there is no dependence on imported oil or gas. Now the price of gas is going down in the Eurozone, but will this factor allow the EUR/USD downtrend to reverse?
The different nature of inflation poses different challenges to the Fed and the ECB. The Fed is stepping up its borrowing costs and shrinking its balance sheet, while the ECB cannot afford a sharp rate hike without risking sending the economy into a deep recession. Nevertheless, the European regulator is taking unhurried and pointed decisions, the effect of which will be visible in a few months.
Now the European regulator is expected to raise the rate by 75 basis points at its meeting on October 27. According to Reuters forecasts, the rate on deposits in the Eurozone will reach 2.5%, which, of course, is much lower than the Fed's goals.
It turns out that at the next meetings of both the ECB and the Fed will raise the rate equally, but in the long term the ECB will remain committed to a soft policy, while the Fed will continue to move in a hawkish manner. course
According to Bloomberg, the U.S. inflation slowdown will begin in 2023. Market participants, of course, believe in the Fed's resolve, but secretly dream of a "dovish" reversal in order to catch the nucleation of the trend at the outset. This desire has already fooled investors several times, but history is likely to repeat itself.
It does not make sense for the European Central Bank to raise the rate as much as the Fed does, so the "hawkish" fervor of the regulator will finish faster than that of the Fed. Therefore, despite upward movements the EUR/USD downtrend remains a priority.
It is not inconceivable that the current rise in the pair is connected not only with falling gas prices and stabilization of the British markets, but also with the expectation of the ECB rate hike by 0.75%. But, realizing the temporary nature of the corrective movement, we continue to adhere to the previous forex trading strategy and sell EUR/USD on strengthening to 0.0980; 0.9920 and 0.9950.
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