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EUR/USD Outlook as More Signs of Fed Tightening Emerge

EUR/USD Outlook as More Signs of Fed Tightening Emerge

  • Published: 10th October 2022

EUR/USD has dropped by close to 15% year-to-date with the Fed being the most hawkish it has been for decades. An ultra-hawkish Fed has sustained the US dollar above the previously steady resistance zone of $100 since mid-April. In the new week, inflation data and Fed minutes are the main events to look out for.  

Market drivers for the new week

As has been the case in recent weeks, central banks’ policy is this week’s main theme. In fact, investors are keen on the CPI data from the US and Europe’s leading economy – Germany. Besides, the Fed meeting minutes are scheduled for release later in the week.

Seeing that both the Federal Reserve and European Central Bank have room for more interest rate hikes, these economic events will avail further cues on the banks’ next move. Notably, the Fed is the most hawkish it has been for decades.

The jobs data released on Friday by the US Labor Department showed that the unemployment rate dropped from 3.7% to 3.5% in September. A strong labor market has been one of the key drivers of the Fed’s aggressive policy tightening.

From the aforementioned economic events, hints of further tightening by the Fed may further boost the US dollar against the Euro. The dollar index has been on a rebound for four consecutive sessions after hitting a two-week low in the past week.

EUR/USD forecast

As seen on its daily chart, EUR/USD failed to yield enough bullish momentum to break the resistance along its parity level of 1.0000 in the past week. Indeed, it is still trading below the 25 and 50-day exponential moving averages. Besides, the Relative Strength Index (RSI) has dropped further below the neutral level of 50. On Monday, the RSI was at 39.

Based on these technical indicators, coupled with the fundamentals, I expect EUR/USD to remain on a bearish trend in the ensuing sessions. Indeed, a move past 1.0000 will invalidate this bearish thesis.

 In particular, the range between 0.9858 and 0.9592 is worth watching for the remainder of the week. Even with the volatility expected in reaction to the inflation data and Fed minutes, the bulls will be keen on sustaining the currency pair above the YTD low hit about two weeks ago at 0.9540. Find out how to send money to Germany.

Crispus Nyaga

Crispus Nyaga is a full-time financial analyst and trader with more than 7 years in the industry. He has been fortunate to work for several fintech companies, mostly from Europe, Asia, and North America. His work is published in leading platforms like Seeking Alpha, Invezz, rkdream.com InvestingCube, Capital.com, and Marketwatch. Crispus operates from a private office in Nairobi.