In the US, the Federal Reserve decided to keep interest rates unchanged as expected. The decision came after the economy displayed stronger resilience than anticipated. The Fed’s macroeconomic projections were revised higher, indicating that the majority of members still anticipate another rate hike by the end of the year, with fewer rate cuts in 2024. Fed Chair Powell emphasized the importance of data dependency and stated that the central bank will proceed cautiously in determining the optimal level of rates. Although they aim for a soft landing, it is not currently their base case.
Meanwhile, in the Eurozone, the European Central Bank (ECB) recently raised rates by 25 basis points and hinted at the end of the tightening cycle. President Lagarde acknowledged the slowdown in the Eurozone economy and did not oppose the notion that the terminal rate had been reached. Inflation measures have slightly softened but remain uncomfortably high. The labor market remains tight, with the unemployment rate at record low levels. Economic data indicates a rapid deterioration in the economy, leading to concerns about a possible recession in the near future. The majority of ECB members are now inclined to keep rates higher for a longer period of time, and the market does not expect any further rate hikes from the ECB.
In terms of technical analysis, the EURUSD pair has recently reached the 1.05 handle, which was the initial target of a significant selloff. The pair appears oversold and could potentially experience a bounce at this key level. On the 4-hour chart, there is strong resistance around the 1.07 handle and the major trendline, which sellers may take advantage of. Buyers will look for a break above the minor trendline to position for a rally into the major trendline. In the upcoming events, the US Jobless Claims report is anticipated to be the main event, with strong readings likely to support the USD and weak data potentially weighing on the greenback in the short term. The latest Eurozone CPI data is also expected, along with the US PCE data. These events may influence the market further.