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EUR/USD - The Fed committed to Fight Inflation!
07.07.2022

Everyone who has been following the market is most likely hearing the word “parity” left, right, and center. Parity is a term used within the financial trading markets to describe the value of the Euro being equal to the value of the US Dollar. In a little over a year, the price of the EUR/USD has declined by 16.5% and we are only 220 PIPs away from parity.

The price movement of the EUR/USD pair has been struggling to break through the support level of 1.0350 up until 48 hours ago. Since the bearish breakout the price has gained momentum and declined by 234 PIPs within 2 days. This morning the price is slightly increasing, but has so far gained nothing more than a retracement, and has yet been able to form a higher price high. However, traders are likely to be cautious about placing further sell trades while the price is increasing.

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The price is mainly being influenced by the Federal Reserve Meeting Minutes but also by the Euro’s current weakness. The market was mainly looking to obtain further clarity as to whether the Fed will increase interest rates by either 50 or 75 basis points. However, no clarity was given on this matter and the Fed advised that it would also depend on the newest inflation figures.

However, the Meeting Minutes did expose certain views and opinions of the most influential bankers in the US. The Minutes revealed that the Fed is likely to become even “more restrictive” if inflation does not decline. Furthermore, the report confirmed that the central regulator would “not allow inflation to become a lasting trend”. High inflation over long periods has been known to be extremely damaging to economies and the purchasing power of the currency, such as Turkey and South America.

In addition to the Federal Reserve, the price of the US Dollar was supported by the economic figures released yesterday. This includes the Service PMI which came in higher than expected at 55.3, as well as the JOLTS Job Openings which again came in higher than expected at 11.25 million.

The Euro has come under immense pressure over the past week as the region continues to deal with a potential gas shortage. This is due to the upcoming temporary suspension of Russian gas supplies via the Nord Stream 1, as well as the oil and gas workers strike in Norway. In addition to this, the region has come under pressure from its latest economic figures which show that the economy has stopped growing but simultaneously the level of inflation remains high. This put the European Central Bank in a difficult position as they look to tackle inflation.

Throughout the day, the markets will be focusing on the European Economic Projections, the US Unemployment Claims, as well as speeches which are scheduled for this afternoon where the Federal Open Market Committee will comment on inflation and the monetary policy.

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