EURUSD set to pop as headwinds ease

Last week the ECB hiked rates by 75bp, taking the deposit rate to 0.75%.

The comments that accompanied the decision noted that policy rates remain “far below” levels needed to ensure the return of inflation to 2% and that further hikes “over the next several meetings” will be required.

With an eye on European inflation, expected to hit 10% shortly, the European interest rate market is now gravitating towards a 75bp rate hike at the October meeting (64bp priced). The expectations are then for a 50 bp hike in December and two smaller 25bp rate hikes in 2023, taking the terminal rate to 2.5% in Q1 2023.

The repricing of the European rates market has coincided with the Ukrainian Armed Forces reclaiming a substantial amount of territory over the weekend.

As well as a sharp fall in natural gas prices on proposed government measures of a windfall tax. Dutch natural gas futures are trading at €195/MWh after hitting €340/MWh just under three weeks ago.

Turning to the U.S side of the equation, the US interest rate market currently has 72bp of a 75bp rate hike priced for the upcoming Sep FOMC. Followed by a 50bp and a 25bp rate rise that would take the Fed Funds rate to 3.75%-4% by year-end.

The Fed looks set to take its foot off the rate hiking cycle gas when the ECB is just pressing down on the pedal.

Combined with recent developments on the battlefield, the energy market, many factors that have driven the EURUSD are now easing.

Throw into the equation the market is holding a modest EURUSD short position, and the stage is set for a EURUSD recovery.

Consider buying EURUSD at 1.0150 with a trailing stop loss placed initially at .9850. The target is a move to the 200-day moving average at 1.0750/00.

Source Tradingview. The figures stated are as of September 12th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.