DXY: the US dollar index has been declining all week

FOREX Fundamental analysis for EUR/USD on November 15, 2024When fresh data is added to the "Trump trade" confirming the strength of the American economy, the competing currencies of the US dollar are rapidly losing ground. The EURUSD pair fell by 6% from September highs, reaching a more than one-year low. This happened against the background of accelerating inflation in the United States and Jerome Powell's hints that the Fed would not rush to reduce the federal funds rate.Will the U.S. economy remain as stable during Donald Trump's second term? This is the key issue. The reaction of the markets to his victory resembles the scenario of 2016. At that time, the dollar strengthened immediately after the elections, but by 2020, the USD index fell by 10% due to the pandemic that caused the recession. The EURUSD is the same: after the elections 8 years ago, the pair fell, but a year later it was able to grow by 5.6%.The "America first" thesis works as long as the economy shows strength. Now this scenario is confirmed: the number of applications for unemployment benefits fell to the lowest in May, and the consumer and production price index accelerated in October. If such trends continue, the Personal Consumption Expenditure Index (PCE), the Fed's preferred inflation indicator, could rise to 2.7–2.8%. This will offset the Fed's success in fighting inflation and cast doubt on forecasts of a decline in PCE by the end of the year to 2.6%, which was the Central Bank's target.Jerome Powell stressed that there is no need for hasty decisions on the part of the Central Bank. On the contrary, the stability of the economy allows the Fed to carefully consider steps to reduce rates. If the incoming data requires a slowdown, the Fed is ready to follow this course, which seems logical.Powell's statement changed the dynamics of the futures market. After the publication of CPI data, expectations of maintaining the rate at 4.75% in December fell from 41% to 17%. However, a day later, the odds returned to 41%, supporting the dollar. The greenback, as in 2016, is strengthening simultaneously with the growth of stock indices, thanks to the effect of "American exceptionalism".Trump-trade will continue as long as the U.S. economy remains strong. However, it is worth remembering that recessions can occur not only because of pandemics. The Fed's overly strict policy is one of the main risks to economic growth. High rates can cause a recession.So far, this is only a theoretical threat. After reaching the previous EURUSD target of 1.05, traders are advised to pay attention to the new target of 1.035 and continue selling euros against the US dollar.

FOREX Fundamental analysis for EUR/USD on November 14, 2024Investors expected US inflation to exceed the projected 2.6% in October. However, when the actual data confirmed the forecasts, the futures market increased the probability of a December cut in the federal funds rate from 59% to 83%, considering the CPI data an insufficient reason for the Fed to suspend monetary policy easing. The temporary weakening of the dollar did not cancel out the chosen forex trading strategies. EUR/USD sales are still relevant.Neel Kashkari's remarks also influenced investor sentiment. The head of the Federal Reserve Bank of Minneapolis noted that inflation is moving in the right direction, although he recently argued that unexpectedly high data on consumer prices could be the basis for a pause in easing the Fed's policy.The speeches of other Fed representatives show that the agency is gradually changing from an aggressive attitude to a cautious one. According to the head of the St. Louis Federal Reserve, Alberto Musalem, the probability of a resumption of inflationary pressure is growing, while the risks of a slowdown in the labor market are decreasing. The head of the Federal Reserve Bank of Dallas, Laurie Logan, added that the Fed should not rush to determine a neutral rate level, which is probably now higher than before.Statements by Fed Chairman Jerome Powell that temporary weak data do not determine the overall trend continue to keep the market from overly optimistic expectations of monetary easing. Forecasts of a rate cut by June are estimated at about 60 basis points, which implies a rate level of about 4.25% and suggests pauses in the cycle of monetary expansion, which strengthens the "bearish" positions on EUR/USD.The big question is how decisively Donald Trump will fulfill his campaign promises. His tariff and fiscal measures may increase inflation, although this is hardly necessary for a Republican, given Americans' dissatisfaction with high prices, which played a significant role in the defeat of the Democrats.If the new US president chooses a more restrained rhetoric, this will allow the Fed to continue cutting rates and weaken the dollar. However, it is difficult to imagine that a protectionist like Trump will abandon his plans, which will increase demand for the dollar.We are holding the sale of EUR/USD with a target of 1.035.

FOREX Fundamental analysis for EUR/USD on November 13, 2024If you want peace, be ready for war. The eurozone, whose economy is weaker than ever, risks facing even greater difficulties if Donald Trump makes his promises come true. According to Goldman Sachs calculations, the introduction of 10% tariffs on imports could reduce Eurozone GDP by 1%, especially hitting Germany, which is preparing for early elections in February. Against this background, the fall of EUR/USD to parity seems quite expected — and this is probably just the beginning.Deutsche Bank believes that if all Trump's statements come true, the pair may collapse to the $0.95 mark. The Republicans' policy is aimed at weakening US economic rivals such as China and the European Union, which, in fact, redistributes economic growth in favor of the United States. Such "American exceptionalism" can significantly strengthen the dollar.It is logical that leading banks, including Barclays, Nomura and ING, reduce forecasts for EUR/USD. According to Mizuho's calculations, the pair may fall to 1.01 by March, and ING reduces its forecasts to 1.01 by early 2026. Barclays, in turn, emphasizes that both Trump's economic initiatives and the macroeconomic situation work in favor of the dollar. In addition, against the background of high inflation expectations, traders are ready to bet on the Fed's pause in easing policy.But, what is interesting about forex currency trading is that forecasts do not always come true here. Standard Bank recalls that in Trump's first term, the dollar index fell by 10%, and Commerzbank also does not exclude the possibility of the White House intervening in the market to weaken the greenback.The bulk of the USD decline occurred in 2020, when the Fed introduced significant incentives due to the pandemic. In 2017-2018, there were also fears that China would begin to get rid of treasuries in response to the trade war, but without these factors, the dollar would probably have strengthened. Therefore, the current bets on the fall of EUR/USD look reasonable.The pair's decline may accelerate if US inflation exceeds expectations in October. The head of the Federal Reserve Bank of Minneapolis, Neil Kashkari, noted that the CPI growth may cause a pause in the easing of the Fed's policy. Expectations of a rate cut in December fell from 80% to 62%.Thus, EUR/USD sales continue to gain popularity. At the moment, the optimal solution seems to be adjusting the target level for short positions from 1.05 to 1.035.

FOREX Fundamental analysis for EUR/USD on November 8, 2024Donald Trump is famous for his activity on social networks. In his first term as president, he even earned the nickname "the king of social media." However, until he officially takes office, his statements may remain only pre-election rhetoric. In this regard, some investors decided to record profits on assets that were promoted as part of the "trump trade", which led to a decrease in the EUR/USD exchange rate.In the coming months, investors will be watching the real actions of Donald Trump to understand whether his high-profile campaign promises will come true: whether new duties will be introduced, taxes will be reduced and how these changes correspond to his aggressive rhetoric. Aren't the expectations of "Trump trade" too high?Even more pressure on EUR/USD was exerted by the Fed's statement that Trump's second term would not affect the Central Bank's policy in any way. Jerome Powell stressed that the regulator relies only on facts, not on assumptions about possible decisions of the administration and, moreover, not on shouts from the White Duma.After Jerome Powell's last press conference, the chances of an interest rate cut to 3.75% by the end of the cycle decreased from 34% to 18% (previously they were 55%). Citi now forecasts a rate cut to 3.6%, while Nomura expects only one change in 2025, instead of the estimated four.Thus, the markets are questioning the independence of the Fed's decisions. In the eyes of investors, Trump's proposed tariffs, tax incentives and immigration policies may increase inflation and force the Fed to reconsider its approach, which will ultimately strengthen the dollar.Time passes from the moment of the election to the real implementation of the new president's political plans. Donald Trump will take office in a few weeks, and the gap between words and actions may cause a pullback in the "trump trade" and a correction in EUR/USD.The forex trading strategy for EUR/USD suggests that, against the background of growing confidence in Trump's actions, the rollback of the currency pair creates a good opportunity to form short positions with targets at the levels of 1.06 and 1.05.EUR/USD Technical analysisOn Thursday, EUR/USD was adjusted within the framework of a short-term downtrend and reached the resistance area (A) 1.0805 - 1.0794. This area was held by sellers. Therefore, from this area we will consider short positions with the first target at 1.0744 and the second at 1.0682.If the resistance area (A) is broken up during trading, the correction will continue to the trend boundary of 1.0867 - 1.0850. We will also consider sales from this zone.To change the trend to an upward one, buyers need to break through the 1.0867 level and gain a foothold higher. In this case, the target of the bulls will be the upper Target zone 1.1052 - 1.1018.

On Thursday, GBP/USD shows steady growth and is trading around 1.2927, recovering losses from the previous session, when the dollar strengthened after the victory of Republican Donald Trump in the US presidential election. Earlier, Trump promised to tighten trade policy, including a significant increase in duties on imports from the EU and China. The Federal Reserve is expected to cut rates less aggressively compared to the European Central Bank (ECB) and the Bank of England, where the economic slowdown is more noticeable.Investors are focused today on the meetings of the Fed and the Bank of England, which are expected to reduce rates by 25 basis points to 4.75%. In the UK, the current rate is 5.00% after a 25—point cut in August - the first since 2020. After inflation fell to 1.7% in September, a level not seen since April 2021, further easing was expected, especially against the background of falling gasoline and airline ticket prices. However, the increase in expenses and debt obligations announced recently in the budget caused a revision of analysts' forecasts. Additionally, the slowdown in business activity in October, according to S&P Global UK, reduces the confidence of British companies. The corresponding index dropped to 51.8 points, the lowest value since November last year.Additional pressure on the pound was exerted by data on the UK construction sector. In October, the business activity index fell to 54.3 points against the projected 56.0. At the same time, the services sector showed a slight increase to 52.0 points, and retail sales, according to the British Consortium of Retailers (BRC), slowed to 0.3%, although expectations were at 1.4%.On the daily chart, according to the Bollinger band indicator, a slight decrease is noticeable, indicating a moderate expansion of the price range, but trading activity does not keep pace with this movement. The MACD indicator is also declining, maintaining a weak sell signal. Stochastic shows similar dynamics, turning downwards in the middle area.We are considering long positions when the level of 1.2948 breaks up with a target of 1.3050 and a stop loss at 1.2900.If the 1.2948 level turns out to be a strong resistance and a breakdown occurs down from the 1.2900 mark, this may be a signal for short positions with a target of 1.2817 and a stop loss at 1.2948.

FOREX Fundamental analysis for EUR/USD on November 7, 2024Donald Trump is back in the White House, and with him his famous slogan "America first!" returns. In such circumstances, the United States is increasing the rate of inflation, while economic growth is slowing in other developed countries. As a result, debt rates in the United States are rising faster than abroad. The widening of the difference in US and German bond yields caused the worst daily dynamics of EUR/USD since 2016.On the background of Trump's victory, the American stock market added $1.62 trillion in capitalization, which became one of the largest jumps in history. Meanwhile, Germany and the entire Eurozone, heavily dependent on exports, are at risk of recession due to possible increases in US import tariffs and cuts in military aid to allies. Unlike in Europe, American stock indexes are counting on growth due to deregulation and fiscal incentives. Trump plans to reduce corporate tax from 21% to 15% for US resident enterprises, which, as in his first term, will boost the budget deficit, which already amounts to 5.5% of GDP.Trump's plan to reduce taxes, introduce anti-immigration measures and raise tariffs contributes to higher inflation, which may force the Fed to slow down monetary policy easing by supporting the dollar in forex currency trading. Already, derivatives markets are reviewing the scale of future monetary expansion to 100 bps by September 2025.The situation in Europe looks different. The region's economy is already on edge, and new trade barriers or cuts in military aid will further weaken it. The ECB will probably have to cut rates more actively than planned. It is not surprising that the futures market expects monetary incentives to grow to 130 bps by September 2025, and Lombard Odier predicts the final deposit rate at 1.5%, or maybe lower, unlike the 3.5% federal funds rate in the United States.If the ECB accelerates easing, and the Fed, on the contrary, slows down, the EUR/USD pair will be under pressure. Analysts at Mizuho Financial Group and Deutsche Bank predict a drop in EUR/USD to 1.03 and 1.05, and ING calls the level of 1.05 the nearest target, not excluding a decrease to parity by the end of the year. The same opinion is shared by ABN Amro Bank and Manulife.The fall in EUR/USD may accelerate if the Fed gives a signal to suspend monetary expansion. In this regard, it is advisable to keep the shorts open from the 1.0905 level and increase sales with each upward pullback.EUR/USD Technical analysisYesterday, the target zone of 1.0794 - 1.0777 was broken through with a decrease in EUR/USD. Then, during the European trading session, the pair reached the "golden zone" of 1.0682 - 1.0670. After that, an upward correction began, which has continued to the present dayIf the corrective movement continues, we will wait for the EUR/USD quotes in the resistance area (A) 1.0805 - 1.0794. After testing this zone, it will be possible to consider new sales of the instrument with the first target at 1.0744 and the second at yesterday's low of 1.0682.If the resistance area (A) is broken up during trading, then the correction will continue to the resistance area (B) 1.0867 - 1.0850. This zone is the boundary of a short-term downtrend. Therefore, we will also consider sales from here.

FOREX Fundamental analysis for EUR/USD on November 5, 2024Market reversals begin to form when investors close their positions. In October, traders focused on the so-called "Trump trade" — predictions of a victory for Donald Trump and the Republicans, which would lead to a political change in the White House and Congress. In this situation, investors expected that the policy of the 45th president would affect the global economy, bring chaos to the markets, and the US dollar would receive support. It seemed that the EUR/USD bulls had no chance left, but they still appeared.Unexpectedly for many, Kamala Harris's chances began to rise when investors almost turned their backs on her. The reason is either the mistakes made by the Republicans, or the successful actions of the Democrats to attract voters. The drop in the probability of a "red wave" strengthened the euro and allowed the EUR/USD pair to partially recover losses.Goldman Sachs experts believe that Kamala Harris's victory can only temporarily weaken the dollar, but fundamental factors such as a strong US economy and the suspension of monetary easing by the Fed should eventually support the US currency.Another reason for the EUR/USD growth was the presentation by the Labour Party of the pro-inflationary budget in the UK, which reduced expectations for further acts of monetary expansion by the Bank of England. In addition, the strong economic indicators of the Eurozone have given reason to believe that the ECB will not rush to cut rates. And this is also a factor in supporting the euro.If Kamala Harris wins the election, Forex currency trading will again follow the monetary policy of the Fed and other Central Banks. However, other scenarios remain. Research shows that despite the drop in support for Trump in some states, according to NBC News, the election race remains at 49% versus 49%. This creates the risk of a repeat of the situation in 2020, when Trump refused to recognize the election results. Such a scenario would be shocking for the markets.On the other hand, a Trump victory could strengthen the dollar again. Potential new tariffs and fiscal incentives will cause inflation to rise, which may prompt the Fed to suspend policy easing. Out of habit, Trump may try to put pressure on Fed Chairman Jerome Powell, but he is unlikely to make concessions.In this situation, selling EUR/USD at 1.0905 can be risky and bring losses to traders. The pair is most likely to fluctuate in the range from 1.07 to 1.1, depending on the election results. The decision whether to hold short positions or stay out of the market is made by each investor independently.EUR/USD Technical analysisEUR/USD is developing a correction of the short-term downtrend. On Monday, buyers tested the resistance area 1.0884 - 1.0873. During the European trading session, the pair broke through this range, but in the American session it returned to the area of 1.0884 - 1.0873.Today, it is necessary to continue monitoring near strong resistance areas in order to find profitable entry points for sale. If the resistance area (A) is broken up during trading, the correction will continue to the resistance area 1.0946 - 1.0929. From this zone, it will be possible to consider sales with the first target at 1.0853 and the second at 1.0761.At the same time, the US presidential election can disperse the volatility of currency pairs in the market and cancel the postulates of technical analysis. Traders who prefer less risky trading are better off staying out of the market on such days.

USD/JPY Fundamental analysis on November 4, 2024Look for someone who benefits from it. Japan does not need either a strong or a weak yen. In the first case, exporters face difficulties, in the second, inflation is rising, making imports more expensive, which is extremely undesirable for a country dependent on energy resources. Japan is striving for a stable currency, and the verbal interventions of the government of the land of the Rising Sun, together with the moderately hawkish position of the Bank of Japan, helped to contain the growth of USD/JPY.Although on paper, the yen may seem strong due to the rate hike by the Bank of Japan. Of course, the speed of monetary restriction has a decisive effect on USD/JPY, but the Central Bank is in no hurry to strengthen the course of monetary policy. If the rate increase is slow, the difference in Japanese and US bond yields is still significant, money continues to flow from Asia to North America, weakening the yen in forex currency trading. The uncertainty of the political situation caused by the loss of the parliamentary majority by the Liberal Democratic Party led to an increase in the dollar exchange rate above 153.8.Nevertheless, Kazuo Ueda was able to calm the excitement of speculators, saying that political changes would not affect the Bank of Japan's policy on the overnight rate. The Bank will continue to make decisions based on wage growth and inflation forecasts, which they expect to reach 2.5% in the 2024/2025 financial year and 1.9% in the next two years. These indicators indicate the intention to continue the normalization of monetary policy.The futures market has raised the probability of the BoJ's next move in January from 63% to 69%, although it is possible that the cost of borrowing will rise in December. Ueda noted that the Bank of Japan needs less time to assess the economic outlook than expected. At the same time, strong indicators in the United States are pushing the BoJ to take more active action. If the Fed suspends easing in January, Japan will probably raise rates too, without fear of strengthening the yen's position.Thus, the verbal interventions of the Japanese government and signals from the BoJ about the imminent tightening of monetary policy helped stabilize USD/JPY. However, the effect may be temporary. If Donald Trump wins the presidential election, the yield on US Treasury bonds will increase, which will strengthen the dollar.The rise in popularity of Kamala Harris before the elections plays into the hands of Japan, as speculators take profits on the dollar, keeping USD/JPY from further growth.In my opinion, the fate of the yen largely depends on the outcome of the US presidential election. If the Republicans occupy the White House, USD/JPY may reach the level of 155.5, which will create conditions for purchases. The victory of the Democrats, on the contrary, will signal the sale of EUR/JPY with targets at the levels of 163.2 and 161.