16.09.202613:26 Forex Analyse & Reviews: EUR/USD and GBP/USD Strategies for Beginner Traders – September 16

The morning was relatively calm: after several days of decline, EUR/USD attempted to stage a modest rebound, the pound generally moved in sync with the euro, while the dollar held on to the gains accumulated earlier this week without any sharp moves in either direction—the market is clearly conserving its strength ahead of the evening event.

Two pieces of European economic data were released today. Italy's Consumer Price Index for August came in line with economists' forecasts, rising by 0.5%, completing the inflation picture for the largest eurozone economies without any surprises—in other words, there was simply nothing for the market to reassess. More interesting was the eurozone's industrial production data for July: the decline was only 0.1%, whereas the market had priced in a significantly weaker result. This suggests that the real sector of the economy is coping with high energy costs somewhat better than expected amid the ongoing conflict in the Middle East. Nevertheless, the euro's reaction to this combination of data was muted: attempts to rise were made during the first half of the day but failed to hold. I believe this is because both indicators, although positive for the single currency, were not significant enough against the backdrop of the much more important event the market is awaiting this evening.

The main event of the day will undoubtedly be the Fed's evening interest rate decision, which the market is almost unanimously expecting to see raised to 4.0%—a move that appears to be a logical continuation of the series of strong inflation and labor market data released in recent weeks. However, the regulator's economic projections and the tone of Kevin Warsh's press conference will be no less important than the rate itself: these factors will determine whether the market views the hike as a one-time measure or the beginning of a more prolonged tightening cycle.

If the Fed Chair indicates that further rate hikes remain under consideration, the dollar, in my view, will receive a strong boost against a broad range of risk assets. For the euro and pound, such a scenario would mean pressure from two directions at once. For EUR/USD, Warsh's hawkish rhetoric could overshadow even today's relatively positive eurozone industrial production data. For GBP/USD, the situation looks even more vulnerable: the pound, which declined in response to the inflation data, is already trading under the pressure of budget uncertainty and could also retest its lows if Warsh confirms a bias toward further tightening. I believe evening volatility in both pairs will significantly exceed normal levels, with the main move likely to occur during the press conference rather than at the time of the rate decision itself.

Momentum

For the euro, the key level on the upside is 1.1551, a breakout of which could take the pair toward 1.1571 and then 1.1595. This scenario, however, would require a shift in the overall market sentiment within just a few hours before the Fed's decision, which does not happen often, so I consider it a secondary scenario. I consider a downside breakout of 1.1529, with targets at 1.1507 and 1.1486, much more likely—this is where the overall picture today appears to be pointing, from the muted reaction to eurozone data to expectations of hawkish rhetoric from Warsh.

For the pound, the key upside level is 1.3492, above which the pair could move toward 1.3512 and then 1.3531. For the British currency to rise to these levels, either a clear reversal in the dollar's upward momentum or an unexpectedly dovish tone from the Fed would be required. A downside breakout of 1.3464, with targets at 1.3435 and 1.3401, looks more logical, especially since the pound has no significant domestic catalysts for growth today.

Mean Reversion

For the euro, I am watching the upper boundary at 1.1560. The logic is simple: the pair attempts to move above this level but fails to attract enough buyers to continue higher, and the price then moves back down, generating a sell signal. Ahead of the Fed's decision, this scenario appears quite reasonable—market participants are unlikely to want to build large positions against the dollar just a few hours before the rate announcement. The lower reference level of 1.1526 works according to the opposite logic: I am looking for buying opportunities after a failed break below this level, but this approach should be treated with caution. Buying against the dollar on the eve of a meeting at which the market is almost certain of a rate hike is a challenging strategy, so it is reasonable to set a modest target for such a rebound.

For the pound, the upper boundary is 1.3491. The same return-to-range pattern applies here: a move above the level without follow-through is a reason to sell, and given the pound's overall weakness ahead of the evening event, this outcome appears likely. The lower reference level of 1.3453 suggests buying on a rebound after a false break below the level. However, this scenario should be traded with caution: the backdrop for the pound is so unfavorable that even a successful technical rebound could prove very short-lived.