The EUR/USD pair hit new 2021 lows around 1.1500, capping a wild week. The US Dollar has gained value in foreign exchange markets after the Federal Reserve announced its policy as expected. The Federal Reserve kept interest rates at 0.25 percent, as expected, but reduced monthly bond purchases by $15 billion. The Fed will begin reducing its $120 billion pandemic-related scheme later in November, by $10 billion in Treasury purchases and $5 billion in mortgage-backed equity purchases.
According to US lawmakers, the financial system has made significant progress toward the central institution’s goals, and a “restraint in the speed of bond buying may soon be justified” if “growth continues broadly as anticipated.” Powell stated that delivery chain difficulties would likely last until sometime next year, implying that inflation will remain high.
Powell denied that the Fed was behind on inflation forecasting, citing the difficulty of forecasting in the current pandemic. However, annual inflation hit a 13-year high of 5.4 percent in September, while core PCE prices, the Fed’s preferred measure, remained unchanged at 3.6 percent. Stabilizing at far too high levels. The monetary authority chief advised patience. Instead of saying that the taper strategy could be adjusted as needed, he stated that he did not want to shock the markets by changing it.
Though the Dollar’s decline was brief, his cautious stance benefited Wall Street. Not only does the US Federal Reserve blame distribution network constraints for price pressure and choppy growth, Most financial institutions believe increased supply will reduce inflation, but they are not certain.
Although the EU Consumer Price Index is expected to hit a 13-year high of 3.4 percent in September, ECB President Christine Lagarde stated on Thursday that interest rate hikes in 2022 are unlikely. According to Lagarde, the medium-term inflation situation remained subdued, making a rate hike “unlikely next year.”
Is US Employment The Weak Link?
Getting back to the US and chairman Powell, he stated that “if we can return to the 3-6-9 month normal of job growth, we would be making great headway.” August and September saw a decline in employment generation, with the nation creating only 194K new posts in September. The JOLTS Jobs Available fell to 10.4 million in August, whereas the quitting rate rose to 2.9 %.
The October non-farm payroll data revealed the US added 531K jobs, above projections and meeting Powell’s forecasts. The unemployment rate dropped to 4.6%, while the labor-force participation rate remained at 61.6%. The study had no effect on the Greenback, which kept its hegemonic position and hit a new yearly high.
Simultaneously, the US reported strong growth figures. The October ISM Manufacturing PMI fell to 60.8 from 61.1, beating expectations. The formal services index rose to 66.7, above the market’s forecasts. Also, in September factory orders rose 0.2% MoM.
However, the European data was generally depressing. In September, German retail sales fell 2.5% MoM, while factory orders rose just 1.3%. Ultimately, industrial production fell 1.1% throughout the same period. In September, the EU Producer Price Index rose 16.0% YoY, indicating rising inflationary pressures.
The EU, Germany, and the US will release final October inflation numbers next week. Aside from the November ZEW Survey, the US will issue a quick assessment of the November Michigan Consumer Confidence Measure, which was previously at 71.7.
EUR/USD Technical Forecast
EUR/USD CHART Source: Tradingview.com
For a second straight week, the EUR/USD fell to its lowest level since July 2020. Compared to the weekly chart, it has broken below its 200 SMA. Simultaneously, technical markers have prolonged their negative falls, indicating lower lows ahead.
The daily graph shows the pair continuing to fall. After spending the week near the 20 SMA, it ultimately fell underneath it on Thursday, continuing the weekly fall. Nevertheless, technical signals continue to trend lower, indicating substantial selling demand.
Primary support is at 1.1460/70. On a first try to breach below it, buyers should be attracted. If the price region gives way, the pair will likely fall below 1.1400/20. To reverse the trend, the pair must first rise over 1.1520, then 1.1615, although sellers would likely rebuff advances if the pair rises above 1.1670.