EUR/USD, Oil Forecast: Two trades to watch

EUR/USD rises post-Fed & ahead of the ECB rate decision

• The Fed hiked rates by 25bps
• Powell left the door open for more hikes
• ECB is expected to follow suit
• EUR/USD tests resistance at 1.1090

EUR/USD is rising for a second straight day amid U.S. dollar weakness following the Federal Reserve's interest rate decision and as investors look ahead to the ECB rate decision.

The Fed, as expected, hiked interest rates by 25 basis points, taking rates to 5.25%-5.5% the highest level in 22 years. Federal Reserve chair Jerome Powell highlighted that there are signs that the rate hikes are working. However, he also warned that June’s cooler inflation data was just one month and more data is needed.

With two inflation reports and two jobs reports due to be released before the September interest rate decision, the Fed will have plenty of data to analyse before deciding whether to hike rates again or leave interest rates unchanged. Dollar bulls were unimpressed by the Fed, leaving the door open to further hikes and the USD trades lower.

Attention now turns to the ECB interest rate decision. The central bank is expected to raise interest rates by 25 basis points to 3.75% after ECB President Christine Lagarde as good as promised the move in the June meeting. This would mark its ninth straight rate hike.

However, what comes next is less clear. Recent eurozone data has pointed to an economic downturn. German IFO business confidence fell to an 8-month low, PMI data showed business activity contracted, and demand for loans fell to a record low as higher borrowing costs hit.

However, inflation at 5.5% YoY in June is still too high and well above the ECB’s 2% target. Therefore the central bank is not likely to hint at the end of the rate hiking cycle but could say that meetings will become more data-dependent. A less hawkish-sounding Christine Lagarde could pull the EUR lower.

EUR/USD forecast - technical analysis

After finding support on the 20 ma earlier in the week, EUR/USD is testing resistance at 1.1090 the May high. A rise above here brings 1.12 round number and 1.1275 the 2023 high into focus.

Should buyers fail to defend the 20 sma, the weekly low at 1.1020 could offer support ahead of 1.0970, the falling trendline support dating back to early May. A break below here exposes the almost year-old rising trendline support at 1.0890.

Oil rises toward a 3.5-month high

• Oil rises on supply concerns ahead of OPEC+ next week
• China stimulus hopes & Fed nearing peak rates supports oil
• WTI crude rises above 200 sma and tests 80.00 resistance

Oil is rising, trading over 1% higher at the time of writing, recovering losses from the previous session. Tight supply and hopes of stronger Chinese demand and a weaker dollar are helping oil prices rise, overshadowing a smaller-than-expected decline in inventory data yesterday.

The EIA crude oil stockpile report showed that US crude inventories fell by less than expected, pulling oil prices lower on Wednesday.

However, the weakness was short-lived as supply concerns continue to buoy the market ahead of the OPEC+ meeting next week. The committee's outlook for demand will be a key deciding factor for Saudi Arabia as it determines whether or not to extend its voluntary output cut of 1,000,000 barrels per day into a third month in September.

Saudi Arabia cut its output by 1,000,000 barrels in July and August, marking its biggest output reduction in years.

On the demand side, Beijing's pledges to take more steps to support growth in China, the world's largest oil importer, have boosted the oil demand outlook.

The fact that the Federal Reserve is also nearing the end of its rate hiking cycle is also considered a positive for oil. It is not only due to USD weakness but also raises the likelihood of the US avoiding a recession.

Oil forecast – technical analysis

Oil has risen above its year-old falling trendline resistance, and its 200 sma, which combined with the RSI above 50, keeps buyers hopeful of further upside. The price trades within a rising wedge, which could suggest that a reversal may be on the cards.

Immediate support can be seen at 77.30 the mid-July high and sellers could struggle to break back below the 200 sma, negating the near-term upswing.

Buyers will need to rise above resistance at 80.00 in order to extend the bullish run towards 82.50, the January high, and 83.40, the 2023 high.