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Abstract: Although it attracted some bargain hunting on Tuesday, the EURUSD continued to consolidate in the range of 1.0700 in Wednesday's trading, as investors were still reluctant to make new bets before the Fed decided on interest rates.

Fundamentals

In August, the consumer price index of the eurozone was finally determined to be 5.2%, which was lower than the 5.3% in July. The core CPI (all items except energy, food, alcohol, and tobacco) was finally determined to be 5.3%, which was lower than the 5.5% in July.

Revised data show that inflation in the eurozone slowed down last month, which will support ECB officials' statement that there will be no need to raise interest rates in the future. The core inflation rate excluding unstable factors such as food and energy is confirmed to be 5.3%, which is a key indicator for policymakers.

Investors believe that last week was the last round of the European Central Bank's (ECB) tightening cycle, but ECB President Lagarde opposed this assumption; Some hawkish officials also said that more actions may be needed.

We expect that both overall inflation and core inflation will slow down significantly in September. This should further reassure the ECB management Committee about the fall in inflation. If the price pressure continues to maintain this trend, we expect that this interest rate hike cycle may be coming to an end.

During the European session on Tuesday, the EURUSD continued to fluctuate within the range of 1.0700, but failed to stabilize, as cautious market sentiment kept the USD flexible against other currencies before the New York session.

The market now expects the Federal Reserve to keep the interest rate unchanged at 5.25%-5.50% after today's meeting of the Federal Open Market Committee, but if there are signs that the interest rate may be further raised, the USD may rise. And the Fed's decision to keep interest rates unchanged should not weaken the strength of the USD. If Powell opens the door to raising interest rates again before the end of the year, it may even further boost the USD, or make the U.S. Dollar Index (USDX) rise further above 105.00, and may drag the EURUSD to fall below the recent low of 1.0631.

Technical Analysis

As investors are preparing for today's Fed meeting, the EURUSD hovered below 1.0717. Since the downward trend started on July 27, 2023, the current downward structure is still intact. The current bears are still in an absolute control position, which is also supported by the fact that the relative strength index has been below the neutral range of 50 for a long time.

During the day, while the bulls still have room for the upside, the rebound momentum still looks rather weak, driven by the overall downtrend. If the bulls get the proper signal from the remaining momentum indicators, they will be ready to take action.

More specifically, the Stochastic Oscillator is still trading in the oversold zone and is hovering around its SMA. A break above 20 would be close to the August 31 local peak, which could be seen as a strong bullish signal. However, the Average Directional Index (ADX) has fallen below 25, indicating that the market is currently trendless and may be ready to signal the next trend.

If the bulls gain momentum to rebound, they may try to overcome the congested 1.0720-1.0745 range and then test the strong resistance at 1.0800.

On the other hand, bears could take advantage of any short-term uptrend and go short at the highs, in which case the descending channel would continue to be resumed, pushing the price to test the March low of 1.0517.

Overall, the market will be very volatile today, but it is expected that when the market calms down, the downtrend may be able to return to reflect the previous bearish trend that broke below the 200-day SMA. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 1.0730

Target price: 1.0517

Stop loss: 1.0810

Deadline: 2023-10-04 23:55:00

Support: 1.0700, 1.0673, 1.0645

Resistance: 1.0720, 1.0734, 1.0767