Another Drop to Parity Highly Likely

Bearish view

  • Set a sell-stop at 1.0100 and a take-profit at 1.000.
  • Add a stop-loss at 1.0200.
  • Timeline: 1 day.

Bullish view

  • Set a buy-stop at 1.0225 and a take-profit at 1.0280.
  • Add a stop-loss at 1.0050.

The EUR/USD price rose sharply after the hawkish interest rate decision by the Federal Reserve. The pair rose to a high of 1.0210, which was the highest point since Tuesday. The price is about 1.40% below the highest level last week.


Federal Reserve rate decision

The Federal Open Market Committee (FOMC) concluded its meeting on Wednesday and decided to hike interest rates by 75 basis points for the second straight meeting. This is the most aggressive that the bank has been at in decades.

The Fed has now hiked interest rates by 225 basis points as it struggles to lower inflation that has risen to the highest point in over 40 years. It is also struggling to lower this inflation without causing a recession.

Still, recent data show that the economy is deteriorating at a fast pace. For example, data published this week showed that pending home sales dropped by 8.6% in June after rising by 0.4% in the previous month. The decline was worse than the median estimate of -1.5%.

On Tuesday, data showed that new home sales declined by 8.1% after rising by 6.3% in May. These new home sales dropped from 642k to 590k. The House Price Index (HPI) declined from 1.5% to 1.4%, meaning that the sector is facing challenges.

The next key data to watch will be the first estimate of GDP data. Economists expect the data to show that the economy expanded modestly by 1.5% in Q2 after falling by 1.6% in Q1. Therefore, the Fed is battling a situation known as stagflation, where slow growth coincides with a rising inflation.

The EUR/USD pair will react to the latest German consumer price index (CPI). Economists expect that the headline inflation rose from 0.1% to 0.6% on a MoM basis. The European Commission will also publish the latest business and consumer confidence data.

EUR/USD forecast

The EUR/USD pair moved sideways after the latest Fed decision. On the 4H chart, the pair has moved slightly below the 25-day moving average while the Relative Strength Index (RSI) has formed a bearish divergence pattern. It is at the important support at 1.0132, which was the lowest level on July 22nd. The pair will likely continue falling as sellers target the parity level at 1.000.

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