EUR/USD. May 25th. The question of the Fed rate hike is still open
May 25, 2023 11:23 am
On Thursday, the EUR/USD pair executed a new reversal in favor of the American currency and continued its downward movement toward the corrective level of 38.2% (1.0726). A rebound from this level could favor the European currency and lead to some growth towards the Fibonacci level of 50.0% (1.0785), but I do not anticipate a strong rise in the euro. The descending trend corridor continues to characterize traders’ sentiment as “bearish.” Closing the pair’s exchange rate below the level of 1.0726 will increase the probability of further decline toward the next corrective level of 23.6% (1.0652).
Yesterday could have been more eventful for traders in terms of information. There was Christine Lagarde’s new statement, speeches by FOMC members, and the Fed’s May meeting minutes. It is the latter event that I want to draw traders’ attention to. Earlier, there was information that some FOMC members support further interest rate hikes. The minutes fully confirmed this, indicating that not all policymakers consider the current rate level sufficient to return inflation to the target value. The minutes also note that progress toward 2% inflation may need to be faster, leading some committee members to support one or two more tightening moves.
At the same time, most policymakers believe that if the economic situation develops in line with forecasts, further tightening may not be necessary. Therefore, I can say that the FOMC minutes were more “hawkish” than traders expected. This does not mean the rate will rise again after the June meeting; everything will depend on inflation and labor market conditions. However, if the consumer price index starts to decrease slower, it may serve as a reason for a new rate hike, which the market is currently not expecting. Any additional tightening will support bears on the EUR/USD pair and bulls on the dollar.
The American currency currently holds all the advantages. It has been in a downtrend for a long time, but the market sentiment has now shifted to “bearish.” The ECB may also raise rates twice, but inflation in the European Union is higher while rates remain lower. The dollar is in a more favorable position.
On the 4-hour chart, the pair has solidified below the ascending trend corridor and the corrective level of 50.0% (1.0941), which allows for expectations of further decline towards the next corrective level of 38.2% (1.0610). A rebound from the level of 1.0610 will work in favor of the euro and lead to some growth toward the level of 1.0941. The MACD indicator shows signs of bullish divergence, but I do not expect a strong rally in the pair after that.
News calendar for the USA and the European Union:
Germany – GDP for the first quarter (06:00 UTC).
USA – GDP for the first quarter (12:30 UTC).
USA – Initial Jobless Claims (12:30 UTC).
On May 25th, the economic calendar includes several entries. The most important one is the GDP in America. The impact of the news background on traders’ sentiment for the remaining part of the day may be moderate in strength.
Forecast for EUR/USD and advice for traders:
New selling opportunities for the pair could be considered if it closes below the level of 1.0785 on the hourly chart, with a target of 1.0726. This target has almost been achieved. New sales or maintaining existing positions should be considered if it closes below 1.0726, with a target of 1.0652. I advise against buying before it closes above the descending trend corridor on the hourly chart, with a target at 1.0843.
The material has been provided by InstaForex Company – www.instaforex.com
On Thursday, the EUR/USD pair executed a new reversal in favor of the American currency and continued its downward movement toward the corrective level of 38.2% (1.0726). A rebound from this level could favor the European currency and lead to some growth towards the Fibonacci level of 50.0% (1.0785), but I do not anticipate a strong rise in the euro. The descending trend corridor continues to characterize traders’ sentiment as “bearish.” Closing the pair’s exchange rate below the level of 1.0726 will increase the probability of further decline toward the next corrective level of 23.6% (1.0652).
Yesterday could have been more eventful for traders in terms of information. There was Christine Lagarde’s new statement, speeches by FOMC members, and the Fed’s May meeting minutes. It is the latter event that I want to draw traders’ attention to. Earlier, there was information that some FOMC members support further interest rate hikes. The minutes fully confirmed this, indicating that not all policymakers consider the current rate level sufficient to return inflation to the target value. The minutes also note that progress toward 2% inflation may need to be faster, leading some committee members to support one or two more tightening moves.
At the same time, most policymakers believe that if the economic situation develops in line with forecasts, further tightening may not be necessary. Therefore, I can say that the FOMC minutes were more “hawkish” than traders expected. This does not mean the rate will rise again after the June meeting; everything will depend on inflation and labor market conditions. However, if the consumer price index starts to decrease slower, it may serve as a reason for a new rate hike, which the market is currently not expecting. Any additional tightening will support bears on the EUR/USD pair and bulls on the dollar.
The American currency currently holds all the advantages. It has been in a downtrend for a long time, but the market sentiment has now shifted to “bearish.” The ECB may also raise rates twice, but inflation in the European Union is higher while rates remain lower. The dollar is in a more favorable position.
On the 4-hour chart, the pair has solidified below the ascending trend corridor and the corrective level of 50.0% (1.0941), which allows for expectations of further decline towards the next corrective level of 38.2% (1.0610). A rebound from the level of 1.0610 will work in favor of the euro and lead to some growth toward the level of 1.0941. The MACD indicator shows signs of bullish divergence, but I do not expect a strong rally in the pair after that.
News calendar for the USA and the European Union:
Germany – GDP for the first quarter (06:00 UTC).
USA – GDP for the first quarter (12:30 UTC).
USA – Initial Jobless Claims (12:30 UTC).
On May 25th, the economic calendar includes several entries. The most important one is the GDP in America. The impact of the news background on traders’ sentiment for the remaining part of the day may be moderate in strength.
Forecast for EUR/USD and advice for traders:
New selling opportunities for the pair could be considered if it closes below the level of 1.0785 on the hourly chart, with a target of 1.0726. This target has almost been achieved. New sales or maintaining existing positions should be considered if it closes below 1.0726, with a target of 1.0652. I advise against buying before it closes above the descending trend corridor on the hourly chart, with a target at 1.0843.
The material has been provided by InstaForex Company – www.instaforex.com
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