Euro Forecast: Post-Fed EUR/USD Selloff Eyes Monthly Low

Euro Outlook: EUR/USD

EUR/USD pulls back from a fresh weekly high (1.0737) as the Federal Reserve shows a greater willingness to keep US interest rates higher for longer, and the reaction to the Fed rate decision may lead to a test of the March low (1.0516) as the exchange rate snaps the recent series of higher highs and lows.

Euro Forecast: Post-Fed EUR/USD Selloff Eyes Monthly Low

EUR/USD registered a fresh monthly low (1.0632) during the previous week as it failed to defend the May low (1.0635), and the exchange rate may continue to reflect a change in trend as Chairman Jerome Powell acknowledges that the forecast for the Fed Fund rate ‘has moved up’ for the next two years.

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Fed Summary of Economic Projections (SEP)

Source: FOMC

The update to the Summary of Economic Projections (SEP) suggests the Federal Open Market Committee (FOMC) will keep the door open to implement another rate-hike in 2023 as the majority of Fed officials believe that it will be appropriate to ‘raise rates one more time in the two remaining meetings this year,’ and it seems as though the central bank is in no rush to switch gears as the median forecast now shows US interest rates around 5.00% in 2024.

Euro Area Economic Calendar

FOREX.com Economic Calendar

In turn, EUR/USD may face headwinds over the remainder of the year as the European Central Bank (ECB) warns that Euro Area ‘interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target,’ and more of the same from President Christine Lagarde may do little to shore up EUR/USD as the Governing Council appears to be at or nearing its hiking-cycle.

With that said, EUR/USD may attempt to test the March low (1.0516) amid the diverging paths between the FOMC and ECB, but the exchange rate may try to defend the monthly low (1.0632) as the recent rebound keeps the Relative Strength Index (RSI) out of oversold territory.

EUR/USD Chart – Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

• EUR/USD failed to defend the May low (1.0635) during the previous week as it traded to a fresh monthly low (1.0632), and there appears to be a change in trend as the 50-Day SMA (1.0907) now reflects a negative slope.
• A break/close below the 1.0610 (38.2% Fibonacci retracement) to 1.0650 (78.6% Fibonacci retracement) region opens up the March low (1.0516), with the next area of interest coming in around the January low (1.0483).
• However, the recent rebound in EUR/USD has kept the Relative Strength Index (RSI) out of oversold territory, and the exchange rate my attempt to track the monthly range if it defends the monthly low (1.0632).

Additional Market Outlooks

AUD/USD Forecast: Fed Interest Rate Decision in Focus

US Dollar Forecast: USD/JPY Pulls Back with Fed and BoJ on Tap

--- Written by David Song, Strategist

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