As the eurozone slides into recession, or has already plunged into one, the Fed is considering whether it should change the wording. In September, the central bank was ready to sacrifice its economy to break the back of the highest prices in the last four decades. Since then, core inflation has accelerated, and the labor market shows no signs of cooling. Is it necessary to hint at a slowdown in monetary restriction? The stock market and EURUSD want it, but it's not bad to want it, as you know.

The drop in business activity in the eurozone manufacturing sector to the lowest levels since the start of lockdowns due to COVID-19 in 2020 is another proof of the decline. High inflation and low demand from abroad undermine the position of the manufacturing sector, the situation in which is deteriorating in all major countries of the currency bloc, with the exception of Ireland. Spain and Germany suffered the most.

German companies were not so pessimistic about the prospects of their own economy, even at the peak of the pandemic and during the global financial crisis of 2008–2009. Then the share of optimists was above 10%. Now it is 8%, which is a record low level since the Association of German Chambers of Commerce and Industry started accounting in 1985.

Against this background, the "hawkish" rhetoric of ECB Governing Council officials looks somewhat strange. Bundesbank President Joachim Nagel argues that 1.5% is not the end of the rate hike. The European Central Bank has a long way to go. According to his Spanish colleague, Pablo Hernandez de Cos, monetary policy should be tighter than it is now.

At the same time, if the futures market sees the ceiling of the ECB deposit rate at 2.5%, then it does not get tired of rising for the federal funds rate. From the recent 4.5%, it has shifted to 5%, but skeptics are wondering: does anyone really think that this figure will be enough to return more than 6% inflation to the 2% target?

Assumed ceilings for central bank rates

In my opinion, the markets continue to be wishful thinking, waiting for Jerome Powell to signal a slowdown in monetary restriction in December. While inflation is so high and the labor market is hot, you should not count on the Fed's transition from decisiveness to a policy of dependence on data. Yes, monetary policy affects the economy with a time lag, but why throw a white flag ahead of time? History knows many examples when the premature retreat of the Federal Reserve ended badly for the US economy.

In any case, no one knows exactly what Powell will say during the conference following the November FOMC meeting. In such an environment, it is better to play it safe.

Technically, on the EURUSD daily chart, as expected, a short-term consolidation was formed in the range of 0.985–0.995. I recommend setting pending orders to buy from 0.995 and sell from 0.985.