Will EUR/USD outpace the Fed? 1.07?

27 Eki 2023

The US dollar gained momentum last Friday following news of an Israeli ground operation expansion in Gaza. Stocks declined, while gold and crude oil prices rose. Meanwhile, EUR/USD took a step back towards 1.0550, erasing daily gains. If the pair surpasses this level and uses it as support, the next bullish targets could be set at 1.0600 (200-period simple moving average) and 1.0640 (38.2% Fibonacci retracement). On the downside, intermediate support is at 1.0520 (static level) before 1.0500 (psychological level, static level) and 1.0450 (end of the last bearish trend). EUR/USD touched 1.0500 in response to the European Central Bank's (ECB) monetary policy decisions on Thursday but managed to recover above 1.0550.

The ECB announced that it would keep key interest rates unchanged after ten consecutive increases. In its policy statement, the bank emphasized that interest rates at current levels, if maintained for a sufficiently long period, would significantly contribute to achieving the inflation target. Lagarde stated that it is premature to discuss interest rate cuts and added that they won't say they have reached the maximum rate.

In the last two weeks, investors have moved away from risk-related assets in anticipation of the weekend due to concerns of further escalation in the conflict between Israel and Hamas. If risk flows continue to dominate later in the day, the US dollar (USD) may find it challenging to maintain its position, which could facilitate an increase in EUR/USD. I also note that the price has been in the same demand area for days, accumulating for an imminent move. Targeting 1.07 for the next direction. Let me know what you think, happy trading to all from Nicola, the CEO of Forex48 Trading Academy.