FOREX Fundamental Analysis for October 26
As soon as the geopolitical tensions receded a bit, old drivers returned to the market - first of all, the yields of debt bonds. Rates on 10-year treasuries are testing the 5% level again, which supports the dollar and puts pressure on EUR/USD.
On the other hand, perhaps it is not about the drivers of growth, but about the fact that the actual realities turn out to be better than analysts' predictions. In particular, experts expected the U.S. economy to contract in the third quarter, but the latest estimate came out at 4.7%, which is higher than the experts' forecasts and much higher than the 2.1% of the second quarter. That is, GDP more than doubled relative to the quarterly statistics. What kind of decline can we talk about?
However, the Fed would like to see a slight economic slowdown as a reaction to the tightening of financial conditions. So far it turns out that the slowdown in inflation is due to external factors. In particular, due to the reanimation of logistics chains.
Christine Lagarde, who noted the ECB's efforts to fight inflation, also adheres to the same point of view. The head of the regulator believes that the Bank can continue the cycle of raising rates, based on economic indicators, but the market does not really believe her, and experts predict a slowdown in consumer price growth in the Eurozone to 3% in the very near future.
Nevertheless, the Eurobloc economy remains very, very weak and there are already signals of recession in the second half of the year. Of course, the United States looks much more powerful than the economies of other developed countries. Hence the strength of the dollar
Bloomberg analysts now expect U.S. GDP to slow to 0.7% in the fourth quarter. If the experts are not wrong this time too, EUR/USD will get a strong support factor. Otherwise, EUR/USD will continue to move towards the pivot level at 1.0. A breakdown and consolidation of the price below the support at 1.05 will allow us to build up short positions. In case of price rebound, we will cover sales.