EURUSD: have the factors of strengthening the dollar already worked out?

FOREX Fundamental analysis for EUR/USD on May 14, 2024Any economy is cyclical. For a long time, rising US inflation has kept rates high and supported the US dollar. However, it also reduced the real incomes of citizens and slowed down GDP growth. As soon as signs of a slowdown began to appear in the economy, optimism revived in the market. Investors are again waiting for a rate cut by the Federal Reserve System (FRS), as it was at the beginning of the year. This is a bad sign for the EURUSD bears.Goldman Sachs believes that in forex currency trading, before the release of the consumer price report in the United States, FOMO reigns - the fear of missing the opportunity to enter or the fear of lost profits. Investors are ready to buy stocks and bonds like hot cakes, which could lead to the rise of the S&P 500 index to new records and lower bond yields. This is the opposite of what happened before mid-April. In the second month of spring, the stock index showed its worst result since autumn, and bond rates rose to November highs, which supported the greenback through currency correlation.Market trends have changed dramatically, and the key to this is that after three months of growth in the consumer price index (CPI), investors expect it to slow down. This will lead to the resumption of the idea of large-scale monetary expansion by the Fed, in contrast to the two monetary policy easing acts expected by derivatives in 2024.Even the expectation of big steps by the European Central Bank (ECB) does not help the sellers of EURUSD. Goldman Sachs and Bloomberg forecast a 75 basis point reduction in the deposit rate to 3.25% by the end of December. Investors are scared by the divergence in monetary policy, which can lead to problems in the Eurozone due to the rising cost of imports, especially for an economy with high energy dependence, such as the European one.However, I will not agree with this. The problem of energy dependence would become acute if gas prices were as high as in 2022. At the moment, they are more than 10 times lower than they were then. The ECB has long hinted at a reduction in the deposit rate, so investors have already taken this aspect into account and are not worried about the weakness of the economy. Well, due to the fact that the factor of monetary policy easing has already been taken into account in prices, you should not expect a sharp decline in the EURUSD at the output of the actual data.In addition, high inflation in the United States constrains the growth of the American economy, while low inflation levels in the Eurozone stimulate it. The labor market remains strong, and real wages are rising, which contributes to the expansion of GDP. It is no coincidence that Bloomberg experts have raised the forecast for the Eurozone economy to 0.7% in 2024.It can be said that the hypothesis of a change in the direction of the EURUSD trend, expressed after the release of employment data in the United States, is beginning to be implemented. The slowdown in the April producer and consumer price indices in the United States will strengthen purchases of EURUSD formed from $1,073. We consider $1,108 as the nearest target.

FOREX Fundamental analysis for EUR/USD on May 13, 2024In order for American exceptionalism to lose its relevance and stop supporting the dollar in forex currency trading, it is necessary not only to slow down economic growth in the United States, but also to return inflation to a decline. Bloomberg economists' forecast of a slowdown in consumer price growth from 3.5% to 3.4% year-on-year and from 0.4% to 0.3% month-on-month was an incentive for further purchases of the EURUSD pair. However, the deviation of actual indicators from the forecast can radically change the fate of the main currency risk.The increase in inflation in the first quarter forced investors to reconsider their views on the prospects for the federal funds rate. If at the end of 2023 derivatives assumed 6-7 monetary expansion assets in 2024, then by the beginning of May this figure had decreased to 1-2. The decline in labor market activity has prompted investors to think that the policy easing cycle will begin in September, and the Fed will cut the rate from 5.5% to 5%. The April inflation data will be a kind of test point for this scenario.A signal that markets are still focused on consumer price indices (CPI) and personal expenses (PCE) in the United States is the growth of EURUSD against the background of accelerating inflation expectations from 3.2% to 3.5%. While the consumer sentiment index fell to its lowest level in the last 6 months. And this is quite understandable.The increase in inflation and the reduction in consumer spending contradict the forecast of a slowdown in the pace of price increases with an increase in real incomes. This may lead to a further decrease in the rate of GDP expansion in the second quarter, which will undermine the factor of American exceptionalism and put pressure on the US dollar.At this time, the rest of the world is giving positive signals, and Europe's economies are strengthening faster than expected. Eurozone GDP grew by 0.3% in January-March, and the British equivalent even by 0.6%. These are the best figures since 2021. After a rapid increase in imports in April, the rise in inflation in China confirms the acceleration of domestic demand. The global economy is moving away from American exceptionalism and moving towards synchronization. This is good news for the euro.However, what about the fact that Europe is moving towards monetary expansion faster than the United States, which in theory should put pressure on the currency of the Old World? The dollar is not only an American currency, but also a world currency. Its share in the gold and foreign exchange reserves of the world's countries is 58%, and 88% of all transactions in the Forex market are carried out with its participation. Therefore, the processes taking place in the United States are more important than the intentions of the ECB.So far, the assumption of a change in the direction of the EURUSD trend remains in force, but requires confirmation, primarily in the form of a slowdown in inflation in the United States. Before the release of an important release, there is a high probability of consolidation of the pair in the range of 1,072-1,080. Our forex trading strategy involves purchases with a decrease in the asset.EUR/USD Technical Analysis for EUR/USDEUR/USD is in a short-term uptrend. The pair has pushed off from the support area 1.0728 - 1.0720 and is heading towards the maximum for May 3. If the extremum is broken, then we assume a further increase in quotations to the target area of 1.0878 - 1.0853.In case of a transition to a downward correction, it will be possible to count on an update of the minimum from May 9 and a decrease in the pair to the area of 1.0686 - 1.0674. After reaching the key support, we will consider purchases with a target of 1.0810.

Trading idea for USD/JPYDuring Friday's trading session, USD/JPY remains near the level of 155.50. Moreover, this stability is observed for the second day in a row. The reason is simple - the lack of important economic news from the United States and Japan, as well as the indecision of traders due to fears of possible interventions from the Bank of Japan.The head of the Bank of Japan, Kazuo Ueda, stressed that the regulator is ready to take measures to strengthen the national currency, as a weak yen has an impact on consumer prices. He also mentioned a possible early increase in interest rates if inflation growth continues in the near future. Analysts believe that last week the Bank of Japan conducted two currency interventions worth $ 50 billion, but there were no official comments on this issue. Nevertheless, it has long been clear that only the intervention of the regulator could prevent further weakening of the yen. The Bank of Japan and the Ministry of Finance of the Land of the Rising Sun have repeatedly stated their readiness to take measures to reduce speculative pressure on the yen. The minutes of the Central Bank's meetings show that the majority of Council members adhere to a "hawkish" course, calling for further rate increases. Analysts are confident that the regulator will carry out an act of monetary restriction at least once more, most likely in the second half of this year. Macroeconomic statistics from Japan, published last week, did not have a significant impact on the dynamics of the pair. The index of leading indicators decreased slightly in March, as did the index of the current situation from Eco Watchers.Given the rhetoric of the Bank of Japan, its willingness to resist the actions of speculators and its intention to continue raising interest rates, the potential for a weakening of the Japanese yen is limited. In such circumstances, the USD/JPY pair is better considered in the perspective of a long-term decline.To sell USD/JPY, it is recommended to include an order in the trader's transaction diary:Sell-Stop 155.20 Take-Profit 153.00Stop-Loss 155.90.

FOREX Fundamental analysis for EUR/USD on May 10, 2024After a decrease in the number of open vacancies in March to a three-year low and an April slowdown in employment rates to the lowest level in six months, an increase in the number of applications for unemployment benefits in the United States to a maximum of eight months convinced investors of a slowdown in the American labor market. This increased the probability of two cuts in the federal funds rate in 2024 from 52% to 60%, reduced Treasury bond yields, returned the S&P 500 to the zone of record highs, which, through currency correlation, allowed the EURUSD bulls to go on the attack.Although applications for unemployment benefits are a weekly and highly fluctuating indicator, recent data indicate a cooling of the American economy. If the April inflation and retail sales data confirm this, the dollar will lose its position in forex currency trading.Even the Bank of England's "dovish" reversal did not help the EURUSD bears. Andrew Bailey, the governor of the Bank of England, highlighted progress in the fight against inflation and suggested that the REPO rate could fall faster than financial markets expected. The projected scale of monetary expansion in 2024 for the Bank of England is 55 basis points, for the ECB – 70 basis points, and for the Fed – 43 basis points.The upcoming slowdown in the US economy may be a strong argument in favor of buying EURUSD. The eurozone looks more dynamic compared to the United States. Its GDP is growing from a low base, while the growth of the US economy is slowing down from high rates. This reduces the divergence in economic growth, which contributes to the continuation of the euro rally against the dollar.Although the market already takes into account the earlier start of the ECB's monetary expansion compared to the Fed, it is still unclear whether the ECB will continue easing in July. Luis de Guindos, vice president of the ECB, stressed that the regulator does not seek a specific plan, but will make decisions based on data.Thus, the bet on reducing the gap in economic growth between the US and the Eurozone is working: EURUSD is sensitive to the deterioration of US macroeconomic statistics, as shown by data on applications for unemployment benefits. However, the main risks for breaking the EURUSD downtrend remain the presidential elections and the acceleration of inflation in the United States. Therefore, in anticipation of data on consumer and production price indices, consolidation of the euro against the dollar is possible. We are holding long positions on EURUSD, formed on the rebound from support at 1.0730.EUR/USD Technical Analysis for EUR/USDEUR/USD is growing in the format of a short-term uptrend. The target of buyers is the maximum from May 3. The intermediate target is 1.0793 resistance. If the pair updates the maximum on May 3, then the Target area of 1.0878 - 1.0853 will be the next target.The trend boundary has moved to the range 1.0689 - 1.0674. If this zone is reached during a corrective decline, then from here we will look for an entry into purchases with a target of 1.0793.To change the trend direction and form short positions, sellers need to break through and consolidate below the 1.0674 level.

FOREX Fundamental analysis for EUR/USD on May 7, 2024The Fed is not going to coordinate the course of monetary policy, relying only on the report of the US labor market. The president of the Federal Reserve Bank of Richmond, Thomas Barkin, believes that the current rate level is sufficient to return the PCE index to the target level. But, in case of overheating of the economy, the Fed knows how to react. If the economy continues to slow down, the regulator will have enough flexibility to prevent a freeze in GDP. In other words, the Fed feels calm and has no plans to change anything. But, that's for now.Forex currency trading is highly dependent on employment data in the United States, which, after the release of the April report, led to the consolidation of the EURUSD even with a favorable background for the euro. The S&P 500 is growing, and government bond yields are declining, in particular due to upcoming auctions, where high demand is expected. This means that interest rates on bonds should fall even lower, which, through the correlation of currencies and rates, puts pressure on the US dollar.On the contrary, the euro is starting to react to positive news. According to World Trade Organization (WTO) estimates, international trade in goods, after a 1.2% decline in 2023, will grow by 2.6% in 2024. The IMF forecasts growth in world trade, including services, by 3%, and the OECD - by 2.3% this year and 3.3% next. Paris believes that positive developments have already proved useful for the export-oriented economy of the Eurozone, which confirms the growth of the indicator in the first quarter by 0.3%.The positive international trade data is not the only factor contributing to the growth of EURUSD. As the US GDP slows and the associated dollar losses, the euro is being helped by the synchronization of global economic growth. Consumer activity in the Eurozone and China is expected to finally accelerate due to the gradual elimination of concerns about the war in Ukraine, the energy crisis and the long-awaited exit from the crisis associated with the COVID-19 pandemic.For a long time, the ECB's forecasts for consumer activity have not been justified. In my opinion, the fears of Europeans, who tend to save more than spend, are to blame for this. However, time heals wounds. Gradually, the world is getting used to the armed conflict in Eastern Europe, and energy prices are not alarming. It's time to fork out. With the slowdown in US GDP growth, the acceleration of its European counterpart becomes a reason to buy EURUSD.Most likely, the divergence of economic growth between the Old and the New World will no longer support the "bears" of the main currency pair so much, and the growing likelihood of monetary expansion by the Fed will create pressure on the US dollar. The EURUSD correction has a good chance of turning into a reversal of the downtrend, although the risks certainly remain.Among them, the acceleration of inflation in the United States should be highlighted, which will force the Federal Reserve to keep rates at the current level for longer than planned. As well as the potential victory of Donald Trump in the presidential election, which would jeopardize the improvement of international trade. For now, it makes sense to buy EURUSD after a breakout of resistance at 1.079 or after a rebound from support at 1.074 and 1.073.EUR/USD Technical analysis for EUR/USDThe EUR/USD exchange rate is declining, correcting the short-term uptrend. A potential target for the bears is the support area (A) 1.0728 - 1.0720. After testing this zone, we suggest looking for points for new purchases of the pair with a target at the maximum from May 3.If, nevertheless, support (A) is broken and EUR/USD is fixed lower, then the corrective decline will continue to the support area (B) 1.0686 - 1.0674. There is also a trend line here, from which we will also consider purchases with the same purpose at the maximum of May 3.

FOREX Fundamental analysis for EUR/USD on May 3, 2024The fight against inflation turned out to be less difficult than expected, even taking into account the OECD estimates. The organization raised its global GDP forecast for 2024 from 2.9% to 3.1% and expressed confidence in a further slowdown in inflation, which will enable Central Banks to begin a gradual easing of monetary policy. The OECD highlighted the strength of the American economy, which is ahead of the European one. Nevertheless, the EURUSD is strengthening ahead of an important report on the US labor marketAccording to the OECD comments, "less hard" means fewer job losses. Interestingly, Jerome Powell also drew attention to the labor market. In his opinion, the Fed will lower the federal funds rate if the unemployment rate starts to rise rapidly. Bloomberg forecasts show that the unemployment rate in April will be 3.8%, but can the Fed know something that others don't? Could the EURUSD rally before an important event be the result of a new wave of rumors?The euro was supported not only by an increase in the forecast of global GDP from the OECD, which is good news for pro-cyclical currencies, but also by neutral comments from members of the ECB Governing Council. One of the main "pigeons", the chairman of the Bank of Greece, Yannis Stournaras, now assumes that the ECB will cut the interest rate in 2024 not four, but three times. Chief Economist Philip Lane talks about a leisurely approach, about making decisions based on observing and analyzing the dynamics of inflation. However, in his opinion, a reduction in rates is still necessary, since prolonged inactivity can negatively affect the Eurozone economy.From Philip Lane's point of view, although the Fed's actions may have an impact on the ECB's decisions, the main focus of the European Central Bank is on internal factors.Markets expect the European Central Bank to act sooner than the Fed. This will allow the US dollar to strengthen its position in forex currency trading in the next three months. However, then, according to analysts' forecasts, by the end of July, the EURUSD will rise to the area of 1.07, and by the end of October to the level of 1.08.Thus, differences in economic growth between the US and the Eurozone, as well as differences in the timing and speed of monetary expansion of the Fed and the ECB, continue to work on the side of the EURUSD bears. However, alarming signals have already been received about the slowdown in the American economy in the first quarter. Now, dollar supporters are anxiously awaiting the April report on the US labor market.In the previous few months, the employment rate looked too strong. Forecasts by Bloomberg economists suggest a decrease in new jobs from +303 thousand to +242 thousand in April, but even this figure will remain significantly higher than the average before the pandemic. If the actual data turns out to be within the forecasts or slightly better, this may be a reason to sell EURUSD in the direction of 1.064 and 1.06. On the contrary, disappointing statistics will be a strong argument in favor of buying a pair.

AUD/USD showed moderate growth, developing an upward momentum on Wednesday, moving away from the lows on April 23. Currently, the pair is testing the 0.6535 level for an upward breakout, and traders are analyzing the April Australian foreign trade report.According to the data, Australian exports increased by 0.1%, while imports decreased from 4.5% to 4.2%. As a result, the balance sheet surplus decreased from AUD 6.591 billion to AUD 5.024 billion, slightly below the expected AUD 7.370 billion. Meanwhile, retail sales fell by 0.4% in March, showing the lowest annual growth except during the COVID-19 pandemic. These data indicate weak consumer demand and an increase in household debt obligations in the context of the "hawkish" policy of the Reserve Bank of Australia (RBA). Earlier, traders drew attention to business activity in the country: the manufacturing index fell from 49.9 to 49.6, the production index from -7.0 to -13.9, and the construction index from -12.9 to -25.6. Business activity in various sectors of the Australian economy continues to decline.Today, market participants are waiting for data from the United States on applications for unemployment benefits. It is expected that during the week the number of initial applications will grow from 207.0 thousand to 212.0 thousand, and the number of repeat applications will remain close to the previous 1.781 million.Tomorrow, data on business activity in the service sector will be published in Australia, and data on the labor market in the United States. The growth of new jobs outside the agricultural sector is projected to slow down from 303.0 thousand to 243.0 thousand.On the daily chart, the Bollinger Band indicator indicates an uptrend. The MACD indicator is growing and gives a weak buy signal, while the stochastic, on the contrary, is decreasing, indicating that the instrument is oversold in the short term.Purchases can be opened after the breakdown and consolidation of the pair above the level of 0.6586 with a target of 0.6661. We will place the stop loss at 0.6540.A rebound from the 0.6586 level and a subsequent breakdown of the 0.6545 level down may be a signal for the formation of short positions with a take profit of 0.6450. In this case, we set the protective stop loss at 0.6586.

FOREX Fundamental analysis for EUR/USD on May 2, 2024Jerome Powell failed to create panic in forex currency trading. And it is unlikely that he aspired to it. For the S&P 500 and EURUSD, the Fed chairman's speech was a positive factor, as it did not present any surprises. However, the bad thing is that the bar for lowering the federal funds rate remains high, although not as high as for raising it. The Federal Reserve intends to act based on new data, which forces investors to pay great attention to the April statistics on the American labor market.Market participants breathed a sigh of relief when Jerome Powell stated that he saw no reason to resume the cycle of monetary restriction. The S&P 500 and EURUSD immediately went up, and US Treasury yields declined. This is good news for risky assets, but not for the dollar. Raising rates requires convincing evidence that current policies are failing to contain inflation.The American economy is not particularly stressed by high rates yet. However, financial conditions depend quite heavily on inflation data, which is of concern to the Fed. According to Jerome Powell, the Central Bank has not finished its work yet, but high PCE figures are already in the past.Initially, the reaction of the markets to the results of the FOMC meeting was a relief. The market expected the Fed to take a tougher stance. However, Jerome Powell seems to think that the current acceleration in inflation is temporary. He cannot say exactly when the federal funds rate will be lowered, although in the futures market the probability of the beginning of a cycle of monetary expansion in September exceeded 50%. This gave additional support to EURUSD.The Fed, backed by a strong economy, can keep rates at a high plateau for a long time, while other Central banks are ready to reduce them. Of the 56 Bloomberg regulators monitored, 5 cut rates in April. The ECB is planning a reduction in June, and later the Bank of England. This creates a solid foundation for the US dollar. However, the future fate of the greenback will depend on macroeconomic data.In this context, the statistics on employment in the United States will give an important clue. Forecasts by Bloomberg experts suggest that employment will grow by 243 thousand in April, which is a very good indicator. Unemployment is likely to remain at 3.8%. Interestingly, according to Jerome Powell, the Fed is ready to cut rates with a significant increase in unemployment. This underscores the importance of labor market statistics for the Fed, as they help determine the prospects for inflation and the economy.Upcoming statistics on the US labor market may cause the EURUSD to slow down in the range of 1.07-1.072. We do not practice forex trading based on news and will remain outside the market.EUR/USD Technical analysis for EUR/USDOn Wednesday, EUR/USD adjusted upwards and reached resistance 1.0741 - 1.0733. Nevertheless, the pair maintains a short-term downtrend. Near zone, we will consider entering short positions with a target at yesterday's minimum. If the pair consolidates below the extreme, then we expect the downward trend to fall towards the 1.0561 - 1.0544 zone.The trend boundary is the 1.0750 level. If EUR/USD breaks through this level and gains a foothold higher, then in the short term, the trend direction will change to an upward one. In this case, we will look for an entry into purchases with a target at the upper boundary of the 1.0878 - 1.0853 area.