During this trading week the bears' control over the direction of the EUR/USD currency pair increased with losses reaching the 1.0702 support level. This is its lowest in three months, before settling around the 1.0725 level at the beginning of today's session, Thursday. The US dollar will be the strongest with expectations of more times the increase in the American interest rate since the US economy was not negatively affected by the tightening of the bank's policy. On the other hand, the euro is exposed to the cloudiness of the scene regarding the American interest rate.
The markets see that there is less than a 50% chance that the European Central Bank will raise the interest rate next week, an expectation that has somewhat contributed to facilitating the recent weakness in the euro. But economists at ING, the Netherlands-based lender and investment bank, expect interest rates to rise again next September, a move that could boost the euro given current market expectations that interest rates will remain unchanged. In this regard, Carsten Brzeski, an analyst at ING Bank, says: "We admit that the result is very close, but inflation is still very high, and the focus on actual developments instead of the expected developments, and the fear of stopping prematurely will tip the balance towards raising the final interest rate Next week."
The economist admits the uncertainty that surrounds the decision due to the conflicting messages coming from the economy: on the one hand, inflation is still very high but on the other hand, it is clear that economic activity is slowing down sharply. The analyst added by saying, "The drop in morale indicators since the July meeting indicates that the Eurozone economy is rapidly losing strength." And the decrease in demand for new loans, whether by households or companies, does not bode well for future activity. The risks of recession have gotten used."
He adds that the European Central Bank may also be inclined to allow the effect of a 425 basis point interest rate hike and make its impact felt.
But overall inflation remains too high for the now strictly data-driven central bank, and the recent rise in oil prices may prompt ECB economists to raise inflation expectations again. Wage growth in the Eurozone also reaches 5.0%, which is in line with the steady inflation levels feared by the European Central Bank.
According to the analyst: "Last year's experience showed that the European Central Bank sticks to its position of focusing more on the actual data instead of the expected data, and still sees that there is a greater risk in stopping tightening too early rather than going further". And he adds: "For the falcons, the risk may be so high that the temporary stop may actually turn into an actual full stop later this year."
ING Bank expects to raise interest rates again, although they expect the European Central Bank will also be keen to avoid calling it the final step, which could boost interest rate cut expectations and ultimately undermine the impact of the hike. Therefore, if ING's expectations are correct, the euro may find itself on sale on Thursday when the decision and guidance are issued.
Expectations of the euro against the dollar today:
- The EUR/USD currency pair is still several levels below the 100-hour moving average.
- The currency pair appears to have staged a late recovery, preventing it from falling to oversold RSI levels on the 14-hour frame.
- In the near term and according to the performance on the hourly chart, it seems that the EUR/USD currency pair is trading within a downward channel.
- However, the MAC seems to be about to initiate a more bearish crossover indicating bearish sentiment.
Therefore, the bearish speculators will target short-term profits at around 1.0690 or lower at 1.0670. On the other hand, the bulls will look to pounce on the rebounds at around 1.0747 or higher at the 1.0771 resistance.
In the long term and according to the performance on the daily chart, it seems that the EUR/USD currency pair is trading within a downward channel. The daily MACD indicator also seems to support the downtrend after completing the bearish cross. Therefore, the bearish speculators will look to extend the current series of declines towards 1.0627 or lower to the 1.0534 support. On the other hand, the bulls will look to pounce on possible reversals at around 1.0818 or higher at the 1.0919 resistance.
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