EUR/USD Price Forecast - Euro Running Into Resistance Again

Fed’s Hawkish Suprise

Growth is seen higher at 7% (yes SEVEN!) in 2021, half a percent up from the prior forecast, 3.3% next year and 2.4% in 2023. Unemployment was left broadly unchanged and core PCE inflation is forecast to rise sharply this year at 3% (+0.8% higher than the previous estimate) before slowing to 2.1% in the following two years. Chair Powell admitted higher inflation could go on for longer though he doesn’t expect it to feed into expectations.

Big dot plot change

The majority of the FOMC brought forward en masse their rate hike outlook and this proved the biggest sucker punch to markets who have been guided over the past eighteen months by nonstop easing and a persistently dovish Fed who has remained purposefully behind the curve. Two hikes are now suggested in 2023 (from zero in the prior meeting) and seven out of 18 members already expect one next year. This all means that tapering, let along the beginning of taper talk, is not so far away!

Dollar bid

This is all quite a shock from the FOMC even if markets had set itself up for one, with traders expecting the Fed to remain fairly cautious while acknowledging rising price pressures. Going forward, the Fed is now more likely to respond to data and is more prepared to tighten than previously thought.

The dollar has burst higher and there is plenty of room for US real rates to continue rising from their low base which means more upside.

This should also mean higher volatility which is good news for traders! EUR/USD especially, has broken out of its recent range and smashed down through the 1.21 support. Although the pair paused last night at the 200-day SMA, this morning has seen follow-through selling as we dip towards the next Fib level at 1.1950.

Gold also got hit as swarms of buyers dashed for the dollar and shorts were desperate to cover positions. After the 200-day SMA got taken out overnight, $1800 is the next support level ahead of the 100-day SMA just below here.

By Lukman Otunuga Research Analyst


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Lukman Otunuga

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets. Lukman provides in-depth analysis on the global currency and commodity markets and is often quoted by leading international media outlets such as: MarketWatch, CNBC, NASDAQ, Reuters, AFP, The Guardian and Yahoo. Prior to joining FXTM, Lukman spent two years as a research analyst with international currency broker FXCM, where he focused on a technical and fundamental analysis of the global currency, commodity, and stock markets. Lukman was also responsible for leading educational seminars for international and local high net worth individuals, and has published a series of educational articles on forex trading with City A.M. Lukman holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions