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EUR/USD drops below 0.99 ahead of FOMC decision

This week has been characterized by geopolitical tensions between Russia and NATO, as well as the upcoming Fed meeting.

The USD continued to strengthen in the middle of the week, bolstered by the upcoming Fed meeting, along with more geopolitical tensions between Russia and NATO. As of writing, the EUR/USD pair declined below the 0.99 level, likely testing the September lows at 0.9870 soon.

Fed in the spotlight

Later in the session, the Fedโ€™s monetary policy decision will be revealed. Following last week’s hotter-than-anticipated U.S. inflation report, it is generally predicted that the Fed will raise interest rates by at least 75 basis points, while some are pricing in a 100 bps increase as well.

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Analysts at ING expect a 75 bps rate hike by the Fed, accompanied by a hawkish tone and Dot Plot projections which may show a terminal rate of around 4.25-4.50%. They think this could keep risk sentiment fragile and offer further support to the dollar.

โ€œWith the relationship between short-term rate dynamics and most G10 pairs having waned lately, expect a big chunk of the market reaction to be driven by the reaction in global equities โ€“ here, a still hawkish Fed may not be read as good news, and that is another reason why we expect the safe-haven dollar to remain bid,โ€ they added.

Russia ramps up its war effort

Earlier today, in a taped video message, Putin announced a partial mobilization of the nation’s 2-million-strong military reserve, reiterating his aim to annex the regions of Ukraine already under Russian control.

The crisis in Ukraine has now significantly escalated, which raises questions about how much economic harm the countries of Europe will have to bear.

Meanwhile, European Central Bank (ECB) Vice President Luis de Guindos said on Wednesday, โ€œinflation remains very, very high.โ€ (what a nice observation)

On the other hand, French FinMin Le Maire said that by spring 2023, the worst would be over in terms of inflation.

Bearish trend remains intact

Bears have quickly regained control despite the recent effort to break from the massive downward channel. Thus, the long-term downtrend remains intact, with the next target for bears at 0.9870. If not held, we might see another leg lower, targeting the 0.95 threshold in the medium term.

Alternatively, the price must rise above parity to stabilize from the near-term perspective.

EUR/USD daily chart, Source: Authorยดs analysis, tradingview.com

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