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Selling EUR/USD As FED’s Evan’s Remains Hawkish

Posted Monday, October 10, 2022 by
Skerdian Meta • 2 min read

EUR/USD made quite a comeback at the end of September and earlier this month, gaining nearly 5 cents and touching the parity level for a minute. But, the 50 SMA on the daily chart stopped the bullish momentum and it seems like traders were targeting parity, so they offloaded their positions immediately and reversed course after that. Since Wednesday last week, the pressure has been totally to the downside, and we have been selling retraces higher, as they look pretty weak.

The FED is looking on track for a 75 bps rate hike in the next meeting, followed by a 50 bps hike in December. That is keeping the sentiment bullish for the USD while comments from FED members also point to further strong hikes. Chicago FED Evans made some hawkish comments earlier and after a 50 pip jump, EUR/USD reversed lower again at the 20 SMA (gray) on the H1 chart. We decided to open a sell forex signal here, so we’re cheering for the sellers.

Outgoing Chicago Fed Pres. Charlie Evans Speaking

  • US can lower inflation relatively quickly without recession or a large increase in unemployment
  • Sees target rate needing to rise a bit above 4.5% by early next year and remaining there as Fed takes stock
  • Fed needs to carefully and judiciously navigate to reasonably restrictive policy rate
  • Any risk could derail Fed hopes for soft landing including Ukraine war, slow supply improvement, Covid, and monetary policy either not fixing inflation or weighing more than expected on jobs
  • Without a period of restrictive policy to restrain demand, inflation would not fall to anything near 2% target
  • May be that labor shortages are having an unusually large influence on inflation which could allow fast improvement on inflation as economy calls
  • Good news that longer-horizon inflation expectations have generally remained within range consistent with 2% target
  • Fed needs to see inflation coming down
  • Inflation is much more persistent than the Fed thought it would be. Clock is still waiting to start
  • Now many differences in policy pass being laid out
  • The important thing is to get an inappropriately restrictive rate and watch how economy evolves
  • JOLTs data is trending in the right direction, but vacancies remain high
  • Still waiting for convincing evidence that inflation is
  • FOMC is very clear in how it is clustered around a rate in the range of 4.5% next year
  • risk of a downturn in Europe is quite strong

Evans will be retiring at the end of the year. His comments are consistent with the Fed’s stance that they will continue to lead rates toward restrictive levels. That includes 4.5% by the end of the year and 4.75% in the 1st quarter. It seems the Fed will then pause to see what happens. That is what is going to happen.

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