EUR/USD Forecast: Euro eyes multi-decade lows amid escalating geopolitical tensions
(Eren Sengezer – FXStreet)
– EUR/USD dropped below 0.9900 in the early European session.
– Russian President Vladimir Putin announced partial military mobilization.
– Fed is widely expected to raise its policy rate by 75 bps.
EUR/USD has suffered heavy losses and declined below 0.9900 in the early trading hours of the European morning on Wednesday. Although the near-term technical outlook points to oversold conditions, the pair could find it difficult to stage a rebound amid escalating geopolitical tensions.
Russian President Vladimir Putin announced a partial military mobilization and noted that they are ready to take necessary steps to defend sovereignty, arguing that the West is trying to destroy Russia. “I tell the West, we have lots of weapons to reply, it is not a bluff,” Putin said during a televised address to the nation.
This development triggered a flight to safety and caused the shared currency to weaken against the greenback.
Meanwhile, European Central Bank (ECB) Vice President Luis de Guindos said that hikes will continue but added that the data will determine the size of rate increases. De Guindos further acknowledged that the euro’s exchange rate is an important variable that they need to look at carefully. Although this comment seems to be helping the shared currency limit its losses, for the time being, investors are unlikely to bet on a steady recovery in the current market atmosphere.
Later in the day, the Federal Reserve will announce its monetary policy decisions. The US central bank is widely expected to raise its policy rate by 75 basis points (bps). Rather than the rate decision, the FOMC’s updated Summary of Projections is likely to impact the dollar’s valuation and influence EUR/USD’s action in the late American session.
In June’s dot plot, the terminal rate stood at 3.8% in 2023 and policymakers’ median projection showed that the rate is expected to retreat to 3.4% in 2024. In case the publication reveals that the terminal rate projection is revised higher toward 5% next year, that would confirm the Fed’s commitment to addressing policy tightening and its willingness to keep rates higher for longer. In that scenario, the dollar is likely to continue to outperform its rivals once the dust settles. On the other hand, a terminal rate projection below 4.5% could revive hopes of the Fed refraining from raising the rate aggressively next year and trigger a risk rally, hurting the dollar along the way.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart declined below 30 following the latest slump, pointing to oversold conditions in the short term. A technical correction is likely to face resistance at 0.9950 (static level, former support) ahead of 1.0000 (psychological level, 100-period SMA) and 1.0020 (50-period SMA).
On the downside, 0.9900 (psychological level) aligns as immediate support before 0.9880 (static level) and 0.9865 (September 6 low).
EUR/USD outlook: News from Russia and aggressive Fed may push Euro much lower
(Slobodan Drvenica – Windsor Brokers)
The Euro extends fresh bearish acceleration into second straight day, after disappointing EU data on Tuesday soured the mood, with announcement from Russian President Putin about the partial mobilization, further worsening the sentiment.
The latest action also added to concerns about the economic outlook for the bloc, as significantly reduced gas supplies to the EU from Russia, might be stopped completely if the situation deteriorates that would lead to a catastrophic scenario for the European economies.
Germany, as the largest EU economy is the most exposed and top officials already warned that industry will be hit badly and some parts likely to be shut down due to the cut of gas supplies.
The news from Russia come just hours before the key event – US Federal Reserve rate decision, with wide expectations that the central bank will raise interest rate by 75 basis points for a third straight time, in their continuous efforts to bring soaring inflation under control.
With the size of rate hike being known (although some economists do not rule out even more aggressive action in raising rate by 1%) markets turn focus towards signals of Fed’s steps in the near future, looking for more clues about the pace and the length of policy tightening process.
With the latest inflation data showing that consumer prices rose above expectations in August, the US policymakers are likely to keep an aggressive stance for some time that will keep the dollar inflated, along with safe-haven flows and weigh on Euro.
Today’s fresh weakness signaled an end of limited correction in past five days and also generated negative signal on break of pivotal Fibo support at 0.9942 (76.4% of 0.9864/1.0197 upleg), with close below this level to confirm bearish stance for retest of 20-year low at 0.9864 (Sep 6), violation of which would open way for a deeper fall.
Res: 0.9975; 1.0000; 1.0031; 1.0050.
Sup: 0.9884; 0.9864; 0.9785; 0.9736.