FOREX fundamental analysis for EUR/USD on October 21, 2022
Rising debt bond yields, falling stock indices, expectations of a new Fed rate hike and demand for protective assets create ideal conditions for the dollar. EUR/USD sellers are not being dislodged by lower gas costs in the Eurozone or the ECB's intentions to implement a 75 basis point monetary tightening.
The Fed continues to struggle with inflation and Treasury yields are showing their best 12-week rally since 1984. According to Patrick Harker, head of the Federal Reserve Bank of Philadelphia, the rate will rise well above 4% by the end of 2022.
CME derivatives are forecasting a rate above 5% by March 2023, although a month ago markets were anticipating a rise to 4.7%. That means it's very likely the Fed will raise rates by 75 basis points in November and December.
Bloomberg writes that the ECB will raise its deposit rate not by 1.5% but by 2.5% by March. We might consider this news as a positive factor for the Euro, but the difference between the rates of the Fed and the European regulator is so obvious that EUR/USD sellers almost ignored the revised forecast.
Moreover, the higher the rates the world's central banks raise, the higher the possibility of a global recession. And that increases the demand for the dollar as a defensive asset.
The position of the dollar in forex trading looks unbreakable. We continue to sell EUR/USD towards 0.95 and 0.93. This strategy is likely to remain relevant until the first quarter of 2023.
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