So, it's the middle of October. The flow of the current month and autumn in general. A good reason to sum up some results and assess the prospects of the EUR/USD pair in the light of recent fundamental events.
To begin with, there is one remarkable fact: the last time EUR/USD traders crossed the parity level "from the bottom up" was almost a month ago, on September 20. Since then, bulls on the pair have been trying to test the key resistance level (which previously mirrored the role of support), but have not been able to cross the 1.0000 mark. Whereas in order to reverse the situation in their favor, EUR/USD bulls need not only to cross this price barrier, but also to overcome the resistance level of 1.0050 (the upper line of the Bollinger Bands indicator coinciding with the lower boundary of the Kumo cloud on the D1 timeframe).
This fact suggests that all current upward pullbacks should be regarded as corrective spikes. While the pair is circling below the parity level, there is no need to talk about a trend reversal – at some point the bears will seize the initiative again and send the pair into another knockout, in the area of the 95th figure. The only question is what will serve as an immediate reason for such a strike.
In this context, it should be noted that traders reacted very cautiously to the latest key releases, which by and large should have supported dollar bulls. The PCE index, Nonfarm, producer price index, consumer price index – all these macroeconomic indicators have come out in the green zone. The EUR/USD pair reacted to these reports accordingly, impulsively declining to the area of the 96th figure. But then bulls came into play, who returned the pair to its previous positions.
If we look at the weekly chart, we will see that the pair is actually stuck in a wide price range, which is limited to 0.9560 (the lower line of the Bollinger Bands indicator on the D1 and W1 timeframes) and, in fact, 1.0000. There is no need to talk about the resumption of the upward trend now – the euro is not capable of independently turning the situation in its favor. That is, the bullish scenario is possible only in case of a large-scale weakening of the dollar. But amid increasing geopolitical tensions, the worsening energy crisis and the growth of inflation indicators in the United States (as well as hawkish expectations about the Federal Reserve's further actions), it is very difficult to imagine a wholesale fall in the greenback.
At the same time, EUR/USD bears need a powerful informational occasion for a downward breakthrough. All of the above fundamental factors allow bears to keep the price below the parity level, but an appropriate impulse is needed for the development of a downward trend.
And such an impulse may be the Fed, whose representatives will comment on the latest inflation reports next week.
Let me briefly remind you that the core consumer price index in September updated a 40-year high, exceeding the forecasts of most experts. The overall CPI is showing signs of slowing, but mainly due to lower gasoline prices. However, this "shop" is likely to close in November, given that OPEC+ members have decided to significantly reduce oil production by 2 million barrels per day. If the White House's countermeasures (the release of additional oil reserves) do not help, gasoline prices in America will soon creep up, which will affect the dynamics of the overall consumer price index.
All this is well understood by the Fed, whose representatives even before the release of the latest inflation report voiced very hawkish comments.
Now the Fed will have to respond to new challenges, already in the light of published releases. The next meeting of the central bank will be held on November 2-3, that is, in just 2.5 weeks. From this date, it is necessary to "take away" 10 days of silence – ahead of each meeting, Fed members are required to remain silent in the public plane. There is very little time left – in the coming days, members of the US central bank will voice their comments, assessments and intentions, in the context of possible outcomes of the November meeting.
I note that the 75-point scenario has already been fully taken into account in current prices. Therefore, a more hawkish scenario can significantly strengthen the position of the greenback, even if it is voiced in a hypothetical way.
So, yesterday, the market cautiously talked about the fact that the Fed may decide on a 100-point hike. The CME FedWatch Tool estimated the probability of such a step minimally (2-5%), but still such a probability appeared among the theoretically possible ones. If the Fed members even mention the figure "100" in the context of hypothetically probable options (albeit with minimal chances of implementation), the dollar will significantly strengthen its position throughout the market, including in pairs with the euro. It is also possible that the members of the Fed will speak more categorically about the 75-point scenario in the context of the December meeting. According to the CME FedWatch Tool, now the probability of implementing this option is estimated at 65%. Accordingly, the probability of a 50-point hike in December is 35%.
It must be admitted that at the moment it is unlikely that the members of the central bank will seriously and "without cuts" talk about a 100-point hike at the November meeting. But if this scenario is not excluded from the hypothetically possible ("in case of further growth of inflation indicators..."), then EUR/USD bears will be able to make another downward breakthrough and settle within the 95th figure. Otherwise, the pair is likely to continue to fluctuate in a wide price range of 0.9560-1.0000.
In conclusion, it is worth mentioning that several representatives of the Fed are expected to speak next week. Among them are James Bullard, John Williams, Philip Jefferson, Lisa Cook and Michelle Bowman. The fate of the EUR/USD downward trend is in their hands.
