Inflation in the United States is slowing down faster than anticipated. It decreased to 7.1% from 7.7%, beating market expectations of 7.6%. According to the most optimistic forecast, inflation was seen to fall to 7.3%. Now there is no doubt the Federal Reserve will raise interest rates by 50 basis points. In this light, EUR/USD went up.
Unites States Inflation:
The market has almost priced the Fed's rate hike from 4.0% to 4.50%. Therefore, this decision will unlikely affect investor sentiment today. Still, this does not mean that there will be nothing else to discuss. It now remains to be seen when the regulator ends the tightening cycle and begins to loosen monetary policy. In light of slowing inflation, the interest rate is now increasingly expected to be cut for the first time in the middle of 2023. When it comes to monetary policy, there are two components that guide the Fed in its decisions – inflation and the state of the jobs market. In fact, the situation in the labor market is not as good as it may seem. The thing is that unemployment is still near its 50-year low. Put simply, the market is now in an overheated state, and this is what the Fed's policymakers have started to hint at lately. There is one way out of this situation – hiking rates. In other words, the regulator would reduce the pace of tightening but keep on raising rates. It would stop only when unemployment rises steadily. Then, interest rates would stay high for some time. All in all, the Fed would change its plans considerably. Still, it is highly unlikely that the Fed announces a shift in its stance today. Therefore, markets will likely find out about it already next year. Nevertheless, it should not be ruled out that Jerome Powell will focus on the labor market in his speech. Therefore, EUR/USD may start moving to the parity level.
Unites States Interest Rates:
EUR/USD updated the swing low and broke through the upper limit of the sideways range of 1.0500/1.0600, which indicates increased buying pressure.
The RSI is moving between line 50 and line 70 on the 4-hour chart. There has been no overbought signal.
The Alligator's MAs are headed up on the 4-hour and daily charts, signaling a bullish bias.
Outlook
The pair will move depending on the outcome of the FOMC meeting and Powell's press conference. Thus, settling above 1.0600, the pair may go up. Otherwise, if the quote returns below 1.0600, a breakout through 1.0500 may occur.
In addition, the market is expected to be volatile.
In terms of complex indicator analysis, there is a mixed signal for short-term trading. In the medium term and intraday, indicators signal a strong uptrend.