FOREX Fundamental analysis for EUR/USD on June 4, 2024
The weakening of the dollar's position in forex currency trading, and the caution of the ECB after the June reduction in the deposit rate, have a significant impact on the dynamics of currency pairs. EUR/USD is confidently moving towards the target of 1.108, which is facilitated by weak statistics of manufacturing activity in the United States.
The ISM purchasing managers' index for May fell to a three-month low of 48.7, disappointing Bloomberg experts. New orders declined at the fastest pace since June, and output was close to stagnation. At the same time, the rebound in the European manufacturing PMI and a surge in business activity in Asia's leading economies indicate a synchronization of global economic growth.
The acceleration of inflation in the Eurozone and the recovery of its economy raise doubts about the aggressive easing of the ECB's monetary policy after the June start. The European Central Bank operates in a unique environment. If earlier he came to the aid of the currency bloc, fought against the defragmentation of the European economy, now the situation is different. The economy is strengthening, inflation remains high, and the reduction in the spread between Italian and German bonds has reached a two-year low, indicating low political risks. It is not surprising that Forex is discussing a potential mistake — easing monetary policy too early. JP Morgan considers the start of monetary easing in June strange and premature.
According to Nomura, at the next meeting, the ECB will announce its intention to take a cautious approach to further reducing the deposit rate. PIMCO warns that if inflation in the Eurozone continues to accelerate, markets will begin to reduce the expected scale of monetary easing, which will have a positive impact on EUR/USD.
On the contrary, after disappointing data on American manufacturing activity, expectations for the Fed began to rise. Derivatives estimate the chances of a federal funds rate cut in September at 60%. A week ago, this figure was less than 50%. According to forecasts of the futures market, the cost of borrowing will decrease by 36 basis points in 2024, and the probability of a rate cut after September remains high.
Thus, the idea of ending the EUR/USD downtrend, announced in early May after the publication of employment data in the United States, is beginning to be realized. Instead of American uniqueness, global economic growth is being synchronized, and the ECB's June decision on monetary easing looks like a mistake. We continue to adhere to the previous forex trading strategy and buy a pair with a target of $1,108.
Technical Analysis for EUR/USD
The short-term upward trend of EUR/USD continued on Monday. As a result, the pair updated the May high. The next target for buyers is the "golden zone" 1.0945 - 1.0937.
At the moment, EUR/USD is working out a downward correction. If the support area 1.0832 - 1.0823 is reached as part of the corrective decline, then we will consider purchases from it with a target at today's maximum.
The trend boundary is shifting to the area of 1.0790 - 1.0777. If the pair tests this area, then it will also be possible to look for an entry into purchases from it.