EUR/USD Forecast: Plunges After Interest Rate Hike

The EUR/USD has been rather negative during the trading session on Thursday, as the market has seen the European Central Bank raise interest rates to the expected 2%, but at the end of the day, the question is whether we are going to see further hikes. Ultimately, I don’t necessarily think that the ECB is in a position to truly tighten the economy, because although we have a lot of inflationary concerns, a lot of that is going to come from the energy aspect, which of course they have very little control over.

Now that we have broken back below the parity level, it will probably bring a certain amount of negativity back into the market. I think at this juncture we could see this market drop rather significantly because I think a lot of the anticipation now will shift toward the Federal Reserve and its monetary policy. Keep in mind that the meeting on Tuesday and Wednesday will be greatly anticipated, and the statement coming from Jerome Powell will be parsed quite significantly. When you look at the 2 candlesticks, they do for a bit of a shooting star over the last 48 hours, but we need a little bit of momentum to the downside to begin shorting again.

Market Likely to Drift Lower

• If we do break down, then I think it’s likely that we will see this market try to test the 0.98 level, possibly even the 0.95 level.
• Quite frankly, the Federal Reserve does not want assets to continue climbing, mainly since the wealth effect is something that they are very cognizant of.
• At this point, I do think it’s more likely than not we go lower, but it does not necessarily mean that we don’t get the occasional rally as we have had over the last couple of sessions.

The European Union must worry about a lot of things, not the least of which of course is going to be a lack of energy this winter. In that scenario, it’s difficult to get bullish on the economy at all, as the Europeans are going to have a long hard winter. On the other hand, the Federal Reserve has already said that it’s going to take its time before pivoting, so my suspicion is there will be a lot of disappointment from time to time for those looking for cheap money again.

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