EUR/USD forecast amid mixed signals by Fed and ECB
- The EUR/USD has struggled to find direction recently.
- The ECB and the Federal Reserve have sent mixed signals recently.
- We explain what to expect ahead of next week’s ECB meeting.
The EUR/USD is struggling to find direction as investors start refocusing on the upcoming European Central Bank (ECB) decision and the mixed signals from the Federal Reserve (Fed). It is trading at 1.1821, which is slightly below Wednesday’s high of 1.1850.
ECB and Fed mixed signals
There have been mixed signals about the next action from the Fed and the ECB. Last week, the Fed released its latest FOMC minutes. These minutes showed that some members of the committee were starting to think that the bank needed to start tapering of asset purchases (quantitative easing). In that meeting, the members also signaled that the bank would start hiking interest rates in 2023.
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However, in a testimony to Congress on Wednesday, Jerome Powell, the Fed Chair, said that the bank will maintain policy even as inflation rises. The testimony came a day after data from the Bureau of Labor Statistics (BLS) showed that the headline Consumer Price Index (CPI) rose to 5.4%. On Wednesday, data also showed that the Producer Price Index (PPI) rose to 7.3% in June.
Meanwhile, the EUR/USD is reacting to mixed signals by the ECB. Last week, the bank tweaked its monetary policy. In it, it decided to set its inflation target to 2% and hinted that it will be comfortable if the rate moves above that level for a while. Therefore, this was an indirect signal that the bank is determined to leave interest rates unchanged for a while. As such, investors will be waiting for more details in next week’s ECB interest rate meeting. In a note, analysts at ING said:
“We still think that eventually, the ECB will reduce the PEPP purchases and increase the APP purchases. However, the new strategy and more dovishness suggest that the total reduction of the monthly purchases in 2022 will be less than previously expected.”
The 2H chart shows that the EUR/USD pair has wavered recently. After rising to a high of 1.1850 on Wednesday, the pair retreated to the current level of 1.1815. The pair is below the upper side of the descending channel. It is also slightly above the first support of the standard pivot points and below the 25-period moving average. Therefore, the pair will likely continue falling as bears target the next key support at 1.1750. This price is along the lower side of the descending channel.
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