FOREX Fundamental analysis for EUR/USD on August 22, 2024
Economic downturns and booms do not end naturally – they are controlled by Central Banks. If Jerome Powell can carry out a smooth landing of the American economy, then his name will go down in U.S. history. Otherwise, it will only confirm the old rule - the Fed wants the best, but it turns out, as always, since the regulator again missed both over time and with the scale of monetary expansion. So far, the optimism of market participants contributes to the growth of EURUSD.
It is believed that the effect of adjusting monetary policy manifests itself after some time, which, in general, is logical. The resilience of the American labor market has long been explained by this principle. However, a major revision of the data on new jobs from 2009 showed that employment from April 2023 to March was 818 thousand less than expected. The monthly average fell from 246 thousand to 178 thousand.
The labor market was not initially as strong as it was thought. This explains why inflation has fallen from 7% to 2.5% in two years and reinforces the Fed's concern about rising unemployment. Although unemployment rose from 3.7% to 4.3%, history shows that the indicator grows slowly at first, but then accelerates. In the minutes of the FOMC's July meeting, some members expressed concerns that a gradual deterioration in the labor market could lead to a deeper economic downturn.
It becomes clear why some of the participants in the meeting were ready to vote for a rate cut in July. This came as a surprise to investors and pushed the EURUSD up. However, most FOMC members preferred to wait until September. But if the Fed had known about the weak employment data for July, the regulator could have eased policy even then.
Now the probability of a 50 basis point rate cut in September looks justified. After reviewing the data, the chances of this increased from 30% to 35%. Now investors are waiting for Jerome Powell's comments at the Jackson Hole symposium. But, do not forget that the history of EURUSD growth is the history of contrasts between the rates of monetary policy of the Federal Reserve and the ECB.
The market expects two ECB rate cuts and three from the Fed in 2024, one of them by 50 basis points. The Fed may act faster due to the cooling of the labor market, which allows the euro to lead among the G10 currency indices in August.
At the same time, despite the success of EURUSD, there is a feeling that investors are still buying on expectations of Powell's "dovish" rhetoric. However, a fact-based sale may occur due to another event, for example, weak European statistics. Thus, a fall of the pair below 1.111 or a rebound from 1.1185 can change forex trading strategies and become a signal for the formation of short positions.
EUR/USD Technical analysis
The short-term uptrend of EUR/USD continued yesterday. As a result, the "golden zone" 1.1121 - 1.1113 was broken. The next target of buyers is target zone 2 1.1214 - 1.1197. It is better to consider entering into new purchases after working out a downward correction.
If the corrective decline starts from the current prices, then we will wait for the pair in the support area 1.1090 - 1.1081. After the support test, we will wait for signals to form a long position with a target at the maximum on August 21. If the support area is broken, the correction will continue to the trend boundary of 1.1048 - 1.1035. From here we will also consider purchases.