EUR/USD Bears Take Control As USD Index Gains Momentum Ahead Of Eurozone GDP Release

Posted Tuesday, January 31, 2023 by
Arslan Butt • 2 min read
After a lot of selling, around 1.0860 from market participants, the EUR/USD pair has kept going below 1.0850. The shared currency pair’s retreat was welcomed with substantial bids as the US Dollar Index (DXY) recovered spectacularly after correcting to around 101.80.

Gains in the S&P 500 futures have vanished as investors have backed the risk-aversion theme ahead of the Federal Reserve’s interest rate announcement. Investors are worried that Fed Chair Jerome Powell’s comments about raising interest rates in the future could worsen recession fears.

The USD Index has recovered considerably as the market anticipates a 25 basis point (bps) interest rate hike. The path to price stability still needs to be taken, as the present rate of inflation in the US is three times higher than the desired rate of 2%. As a result, the Fed cannot cease raising interest rates.

Aside from the policy decision, investors will pay close attention to the interest rate outlook. According to Rabobank analysts, “we continue to believe that, given the weakening impetus of inflation, the Federal Open Market Committee (FOMC) is probably to halt at a 4.75–5.00% target range for the balance of the year.”

Investors in the Eurozone are also anticipating the European Central Bank’s (ECB) interest rate announcement. Rising labor costs and inflation rates above 9% continue to worry ECB President Christine Lagarde. The ECB President is expected to announce a 50 basis point increase in interest rates to 2.50%.

But, first and foremost, preliminary Eurozone GDP (Q4) figures will be scrutinized. On a quarterly basis, the economic data is expected to be 0%, compared to the previous release of 0.3%. While annual GDP may fall to 1.8% from 2.3% previously reported. Investors should brace themselves for a contraction in Eurozone GDP, as the German economy announced a 0.2% decline on Monday instead of the predicted flat reading.

EUR/USD Technical Outlook

The EUR/USD pair has resumed its positive trading to move away from the EMA50, adding credence to calls for the bullish trend to persist for the remainder of the day. Our next major target is 1.1030, and we should keep in mind that maintaining the bullish wave requires the pair to remain above 1.0845.
The market forecast for today is from 1.0800 to 1.0960, with the lower end representing support and the higher end representing resistance.

The expected trend for today: Bullish

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