GemForex - weekly analysis

he EURUSD pair gained for the second week in a row, ending the week at around 0.9950. The US Federal Reserve (Fed) is rumored to be about to decrease the pace of quantitative tightening, which is why the American Dollar (USD) started the week on the back foot and extended the previous week's loss. In the meanwhile, the damaged Euro held steady as fresh statistics from Europe indicated that the economic slump is just getting worse. Things started to shift on Thursday as top-tier competition from Europe and the US left market participants unimpressed.

With the European Central Bank (ECB) releasing its monetary policy decision on Thursday, central banks remained in the calm before the storm. In addition to raising the main three rates by 75 basis points, President Christine Lagarde and the company said that policymakers will abandon forward guidance since it increases the already high level of uncertainty.

While recognizing that economic activity slowed in the third quarter of the year and is expected to decrease further in the next quarters, President Christine Lagarde also reiterated that inflation is much too high. Her remarks, which the market saw as being dovish, placed pressure on the euro and caused the EURUSD to deviate from its previous top at 1.0093. Upbeat US Gross Domestic Product

From the other side of the Atlantic, the greenback (USD) left no trace behind. A pleasant surprise resulted from the nation's publication of the preliminary estimate of its third quarter Gross Domestic Product (GDP). In the three months leading up to September, the economy expanded at an annualized rate of 2.6%, above the 2.4% expectation and reversing the downward trend from the two preceding quarters, according to the study. The news stories put a slight selling pressure on the US dollar because the stock markets regarded the news to be positive. At the same time, pressure on the US dollar increased as US government bond rates dropped significantly from multi-year highs. 

After the early COVID-19 epidemic halted worldwide economic activity, inflation spiked to record highs in key nations. Governments and policymakers were caught off guard by rising prices, which flooded their own financial systems with liquidity and pushed up prices. The Federal Reserve, as usual, took the lead and most central banks immediately shifted direction and accelerated quantitative tightening. The risk of decreasing economic growth is enhanced by the decline in liquidity. As the year progressed, inflation showed no indications of slowing down, but economic activity was plainly declining. The US GDP figure, which indicates that the nation could withstand further rate increases, is currently much more pertinent than the actual market response. 

One of the factors that contributed to the EURUSD falling to a more than the two-decade low of 0.9535 in September was the imbalance between central banks. The belief that the Federal Reserve may moderate the pace of tightening, as well as higher stocks, were factors in the ensuing rebound. Regarding the latter, the fall of large-cap names at the conclusion of the week offered the US Dollar an opportunity to recover. With EURUSD trading once more below parity, the outlook for the Euro's future is not promising.

Next week, the Fed is anticipated to raise rates once more by 75 basis points, opening the door for upcoming smaller rate increases. Market participants predict a 50-bps increase in December and another comparable increase at the first meeting of 2023.

ISM will release the US October ISM Manufacturing PMI and the US October ISM Services PMI next week, in addition to the Fed decision and EU GDP. The October Nonfarm Payrolls data for the US will be released on Friday. It is anticipated to reveal that the economy generated 200,000 new jobs in October and that the unemployment rate increased from 3.5% to 3.6%. The Reserve Bank of Australia (RBA) and the Bank of England (BoE) will also publish their monetary policy choices, it is also important to note. The Bank of Canada (BoC) and the Reserve Bank of Australia (RBA) were the first to lower the rate of quantitative tightening.

Hopefully, next week's information will assist speculative interest in deciding whether EURUSD is a worthwhile investment.