Good day forex traders.
Welcome to our review of the popular currency pair EUR/USD.
In our previous forecast, we noted the bearish pressure coming down from the 1.2. With the expectation of an interest rate hike for the US dollar pushing up demand for the green buck, the Euro currency is likely to remain challenged.
Looking at the EUR/USD weekly chart above we see a bearish channel in progress. As mentioned previously, it is likely that the prospect of further interest rate hikes by the US Federal Reserve is sparking demand for the US dollar.
Up ahead lies the support region of 1.16. If it fails, we may see a stretch for 1.14. Should any bullish recovery gain foothold, 1.18 is likely to resist.
BBC reports “US interest rates are likely to rise again next month and a further three times next year, one of the Federal Reserve’s rate-setters has said.
John Williams, who sits on the Fed’s Open Markets Committee, said a rate rise in December “makes sense, at least based on the information I have today”.
He also told the BBC he was “pencilling in” three further increases next year, as interest rates returned gradually to “a normal level” of about 2.5%.
The key rate target is now 1% to 1.25%.
That’s the highest level since 2008, when policymakers cut rates to encourage borrowing and spending after the financial crisis.
The Fed raised interest rates for the first time since the crisis in December 2015.
Policymakers acted in December 2016 and again in March and June this year.
Mr Williams said that central bankers globally faced new problems.
“Due to fundamental shifts in demographics and slower growth,” he said, “the new normal for interest rates is likely to be much lower in the future than in the past.”
He added: “I think this is going to be the big challenge for us going forward – how to operate monetary policy effectively when the normal or average interest rate is 2.5 to 3%.
“During a recession, the typical response of a central bank like the Fed would be to cut interest rates by five percentage points to stimulate the economy.
“Well, if you’re starting from 2.5 or 3%, you obviously don’t have as much manoeuvring room to give the economy a boost.” ”
The opinions made are very US dollar hawkish. As investors often prefer currencies with a better interest rate outlook, the euro is likely to take a step back if the US interest rate hike continues.
This coming week brings us the US Retail Sales. A strong release is likely to fuel the US interest rate hike theme. Trade safely.
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