EURUSD is experiencing downward pressure after breaking the uptrend, particularly following the recent FOMC meeting. The FOMC meeting exhibited a more hawkish tone than many had anticipated. Notably, the FED funds rate forecast by FED members provided the dollar with another reason to rally. For 2023, most members anticipate another rate hike, which can be viewed as hawkish. However, the primary pressure is stemming from the forecasts for 2024 and 2025, as they are revised upward by 50 basis points, implying that rates might remain elevated for longer than the market had expected. Following the FOMC meeting, the futures market is currently pricing in another hike with a 54% probability, and rate cuts are expected to commence in July or September of the next year. The stronger-than-expected GDP growth, along with a robust job market and rising oil prices, may be contributing to the FED’s shift in policy.
While the FOMC adopts a more hawkish stance, the Eurozone economy continues to perform poorly. The Eurozone manufacturing PMI fell from 43.5 to 43.4, while the services PMI rose from 47.9 to 48.4. Both PMI figures, especially in manufacturing, remain well below 50, indicating that economic activity is still contracting rapidly. Following today’s PMI data release, the downward pressure appears to be mounting. However, there is a critical support level near 1.06 that is currently preventing further downside movement. If this level continues to hold, EURUSD may gather enough strength to initiate an upward trend towards the 50 and 100-day moving averages. Additionally, the MACD is approaching the -0.0070 level, which could serve as support and signal a potential bottom formation, at least in the short term.
Nonetheless, the downside pressure persists, and even if an upward bounce occurs, it could be viewed as a selling opportunity as long as both moving averages remain above EURUSD. A potential break below 1.06 could exert more pressure on the overextended Euro long positions in the futures market. In the event of a long squeeze, EURUSD could decline to targets of 1.048 or 1.04.
