EURUSD falls below parity with Dollar Index leading the way – DailyFX | Jewelry Dukan

  • EURUSD declines like dollar index Starts the week higher, FOMC meeting in sight.
  • 0.9950 support area is key to further losses.

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September 19th

( 13:09 GMT )

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EURUSD fundamental background

EUR USD gave up parity again in early trade and failed to take out Friday’s high. We saw the USD index open higher, pushing to allow a +/-60 pips drop on EURUSD and other dollar pairs, while markets appear cautious as US President Joe Biden declared the US military would defend Taiwan in the event of an invasion by China.

That dollar index seems to be driving the EUR/USD move lower this morning as per the currency strength chart below. The index continued to climb despite a number of investment banks and the World Bank downgrading their growth forecasts for the US economy and warning of a global recession. Goldman Sachs, the most recent, downgraded the US GDP Forecast for 2023 at 1.1% versus a previous estimate of 1.5%. The bank said the increasing risks from monetary tightening are likely to result in liquidity being sucked from the market.

Currency Strength Meter

Comparison of currency strength

Source: FinancialJuice

FOMC meeting and its impact on EURUSD

That US Federal Reserve This week’s meeting should set the stage for the fourth quarter as markets wait with bated breath. The impact of the meeting will be felt across global markets, with the Fed leading the tightening cycle while remaining in better shape economically than some of its peers. Another 75 basis point hike is expected at this week’s meeting, but most of that hike is priced in, it will be the minutes of the meeting and Chairman Powell’s speech that will attract interest. A continuation of the aggressive rhetoric and forward guidance seen recently could push the euro further into the doldrums and put further pressure on the euro European Central Bank (ECB).

As of today, there is an 80% chance of a 75 basis point hike, while there remains a 20% chance of a full percentage point. Given the increasing pace of some of his peers and the youngest CPI Printing a 100bp move would be a huge statement, something I fear ECB will not be able to match. The ECB has been overly optimistic about its economic outlook and I don’t see it being able to maintain the current pace of rate hikes let alone increase it to 100 basis points.

Probability of a Fed rate hike

Source: CME Group

Should the Fed come up with a 75 basis point hike Wednesday coupled with bullish forward guidance and a year-end rate above 4.25%, I expect dollar bulls to take charge and push ahead EUR USD lower. Alternatively, if we get a 75bp hike followed by dovish commentary and a year-end rate target around 4.00-4.25%, we should see EURUSD move higher.

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EUR USD daily chart 09/192022

EUR/USD daily chart

Source: TradingView

Technically, we had three bullish days in a row last week and still ended the week on a bearish note. A clear sign that the sellers are still in control of the pair, with any upward movement viewed as nothing more than a recovery rally. As of today, the key intraday level is resting at 0.9950 with a downside break opening further down towards 0.9900. I currently see no momentum for the pair to challenge the YTD lows, however, the FOMC could be the catalyst for a break to the downside. We are currently trading under the 20.50 and 100 SMA which should provide resistance for any rally to the upside. We are very likely to remain range bound between 0.9900 and Friday’s highs around the 1.004 area until Wednesday’s FOMC decision.

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Technical analysis chart pattern

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Key intraday levels worth watching:

Support Areas

•0.9950

•0.9900

•0.9847

resistance areas

•1,0000

•1.0042




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Daily 12% -3% 6%
Weekly 27% -26% 1%

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Written by Zain Vawda, Markets writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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