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EUR/USD Weekly Forecast: Dollar Bulls Return, Stop The Downturn

The EUR/USD pair advanced early in the week but failed catastrophically at parity, completing the week at roughly 0.9750, resulting in a modest weekly loss.

EUR/USD Weekly Forecast: Dollar Bulls Return, Stop The Downturn

Wall Street and government bonds started the fourth quarter with huge gains.

Risk Appetite Supports EUR/USD.

Market participants expected central banks to slow quantitative tightening due to the rising risk of a global recession.

The Reserve Bank of Australia hiked the cash rate by 25 basis points, less than expected, fueling speculation and demand for high-yielding assets.

The wonderful vibes faded. As the EU recommended new penalties on Russia for its February invasion of Ukraine, the euro fell on Wednesday.

After the illegal annexation of Donetsk, Luhansk, Kherson, and Zaporizhzhia, sanctions included a price ceiling on Russian oil and restrictions on imports and exports.

EU Troubles.

Sluggish EU statistics also dampened risk-taking. S&P Global lowered its September PMIs, reflecting a worsening business sector.

In August, EU wholesale inflation surged 43.3%, yet retail sales dipped 0.3% and German sales fell 1.3%.

ECB Monetary Policy Meeting Accounts affected the common currency. The memo stated that some officials preferred a 50-basis-point rate increase.

The median three-year inflation prediction remained 3%. Policymakers noted that the euro devaluation could increase inflationary pressures, but acting "decisively" now will avoid the need to hike more strongly later.

The Fed is more hawkish than ever.

US Federal Reserve speakers echoed their hawkish tone, worsening market sentiment.

Minneapolis Fed President Neel Kashkari said that while inflation may overshoot, there is no sign that it has peaked.

Inflation is the principal concern of Chicago Federal Reserve Bank President Charles L. Evans and Cleveland Federal Reserve Bank President Loretta Mester.

Governor Christopher Waller concluded that the Fed's policy tightening should continue. US data has raised anticipation that the Fed will continue its aggressive monetary tightening.

September Nonfarm Payrolls statistics showed 265K new jobs, which was higher than projected but lower than August.

Labor-force participation dipped to 62.3% from 62.4% in August, although unemployment fell unexpectedly to 3.5%. The news follows many poor US job data.

On Tuesday, market participants learned that August job possibilities plummeted as layoffs and discharges topped 1.5 million.

On Thursday, the Challenger Job Cuts report showed 29,989 US-based layoffs in September, up 46.4% from August and 67.7% from a year earlier.

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Finally, initial unemployment claims for the week ending September 30 rose to 219K, exceeding expectations of 200K. Despite contradictory data, the job market appears resilient to rate increases. Inflation determines everything.

Fewer but more spectacular activities will occur next week. On Wednesday, the US Federal Reserve will disclose its latest meeting minutes, and on Thursday, the government will release the September CPI.

Inflation is anticipated to reach 8.1% this year, up from 8.3%. Expect 6.5% core. If August's CPI falls, the market's Fed expectations won't change.

The September Harmonized Consumer Price Index in Germany is expected to stay at 10.9%. Finally, Friday will focus on US September Retail Sales.

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