EUR/USD could retest the 0.9851 low of 6 September if the Fed acts decisively – SocGen

The big FOMC day has arrived. Economists at Société Générale believe that the EUR/USD pair could test the 0.9851 low of 6 September depending on the size of the US rate increase.

100 bps cannot be ruled out

“With the Fed likely to act decisively later today, it is not inconceivable that the path has been set for a new low in EUR/USD.”

“The pair is defending 0.99 but a retest of the 0.9851 low of 6 September could follow depending on the size of the US rate increase and the upgrade of the dot plots for 2023-2024.”

“We pencil in a third consecutive 75 bps increase in the fed funds rate today, but the upward surprise in core CPI last week means that 100 bps cannot be ruled out. Our house view is that the fed funds rate will plateau around 4.125% and that a rate cut is likely to be delayed until 2024. A more aggressive profile should in theory translate into a higher unemployment rate too. The pain trade if it materialises is likely to be negative stocks, further curve inversion (2y/10y to top -50 bps?) and dollar strength.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues