Ella 
During the Asian session on Tuesday, the EUR/USD remained within a narrow range and found it difficult to continue its recent rebound over the past two days. EUR/USD is currently trading just below the 1.0700 integer mark, still very close to the six-month low hit after the European Central Bank (ECB) dovish interest rate decision last Thursday.
The European Central Bank opted to raise interest rates for the 10th consecutive time, by 25 basis points, raising the key interest rate to a record high of 4% to combat stubbornly high inflation. However, in the ECB’s accompanying monetary policy statement, the central bank sent a clear message: the 14-month policy tightening cycle may have reached its peak. In addition, the European Central Bank also lowered its inflation and GDP growth forecasts in the next few years (2024 and 2025), once again confirming the prospect of further interest rate hikes by the European Central Bank. While a weaker U.S. dollar continues to provide some support for the EUR/USD pair, this is therefore viewed as a negative for the euro.
The U.S. dollar index (DXY), which tracks the greenback against a basket of currencies, remains stuck at last week’s highest level since March as traders appear less inclined to set up new bullish bets ahead of key central bank activity risks. The Federal Reserve is due to announce the results of its high-profile two-day monetary policy meeting on Wednesday, and is widely expected to hold steady. That said, markets still believe the Fed is likely to raise interest rates by another 25 basis points before the end of the year. The recently released U.S. macro data has been strong and inflation remains strong, allowing the Federal Reserve to maintain higher interest rates for a longer period of time, thus increasing market bets.
As a result, investors will be paying close attention to the so-called “dot plot” and inflation expectations. In addition, Federal Reserve Chairman Jerome Powell’s speech at the post-meeting press conference will also be closely watched, as investors will seek new clues about the path of future interest rate increases. This in turn will therefore have a key influence on the near-term USD price action and help determine the next move for the EUR/USD currency pair. Eurozone inflation finals may provide some impetus ahead of US housing market data (building permits and housing starts) ahead of key central bank event risks. Meanwhile, the above fundamental backdrop appears to favor bullish traders.
Therefore, subsequent gains in EUR/USD may still be viewed as a shorting opportunity, and this opportunity may disappear quickly. However, bearish traders may look for EUR/USD to sustain weakness below the 1.0635-1.0630 area before extending its two-month decline from the 1.1275 area, the 17-month high hit in July. EUR/USD could then turn weak and accelerate its losses to challenge the yearly lows set in January around 1.0480.
