15.09/2023: US Dollar remains resilient to all headwinds. Outlook for EUR/USD and GBP/USD
The fact that the US dollar is overbought leaves no doubt. However, macroeconomic data seems to be the hurdle preventing even minor correction. The only event that could shift the movement was the ECB governing board meeting.
Yesterday, the European financial regulator was expected to raise the refinancing rate from 4.25% to 4.5%.
It actually happened, but the euro failed to gain support from this. On the contrary, the US dollar gained ground. And here is why: in its post-meeing statement, the central bank made it clear that the rate hike was the last one.
At the press briefing following the meeting, Christine Lagarde tried to temper the sentiment. She acknowledged the possibility of future hikes if inflation continues its upward trajectory. However, Lagarde was clear: the European Central Bank is pressing pause to assess the impact of its current measures.
This suggests that any further discussion on interest rate adjustments is tabled for at least three months. With the current trajectory of inflation, it’s likely we could see rates dip below the current refinancing benchmarks before then. This sets the stage for a potential rate cut from the ECB early next year. Meanwhile, the Federal Reserve seems to be on a tighter monetary path.
Amid this, the overbought position of the dollar becomes even more pronounced. The market is clearly looking for triggers to initiate a corrective phase. A sharp downturn in today’s U.S. industrial production figures might just be the trigger the market is waiting for.
Post the ECB meeting, the EUR/USD chart reveals a pronounced dip, swayed heavily by an intense flow of data. The currency pair plummeted swiftly, breaking through the key trading area between 1.0650 and 1.0680/ This is a clear indication of the prevailing bearish momentum amongst traders.
Yet, amid the continuing decline, technical indicators hint at an overbought dollar scenario. This could set the stage for a rebound, potentially enabling the euro to recoup some of its recent losses. Still, the market seems to brush off the overbought signals, keeping its focus on downside potential. As long as traders anchor the pair below the 1.0650 threshold, the bearish drift could extend, possibly targeting the level of 1.0500.
Similarly, the British pound against the US dollar took a downturn following the ECB meeting, carving out a new local low in its current bearish trend.
In this situation, dollar positions appear overheated, hinting at a potential retracement to 1.2500. Yet, if market participants opt to ignore the technical overbought signals and the rate remains anchored below 1.2450, it could lead to a sustained downtrend.
That’s all for now. We keep monitoring the financial market situation. Subscribe to our channel. See you in several hours. We will take a close look at the US trading session.
00:18 ECB interest rate
00:49 Lagarde on raising rates
01:14 What’s next?
01:45 Straw for the market
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