FOREX Fundamental Analysis for October 31
The Fed made a mistake again. This time with the GDP forecast. Financiers expected that in 2023 the economy will grow by 2.1%, and the core index of personal consumption expenditures - by 3.7%. Now, for the Fed's projections to become reality, the economy would have to sag 0.7% and inflation would have to accelerate. So far, it hasn't.
The derivatives market assumes with 98% probability that the rate will remain at 5.5% in 2023. It's hard to argue with that, if only because the Fed itself says the debt bond market is handling its job quite well. Trejeris yields have risen above 5% for the first time in 16 years. This in itself tightens financial conditions and does not require additional monetary restriction. According to Deutsche Bank's forecast, the United States economy will be short 0.6% in 2024, which equates to three rate hikes of 25 basis points each.
Generally, the treasury yields strengthened after the Treasury announced that it would issue over $1trn in Q3. However, the Fed later adjusted the plans, deciding to reduce the borrowing to $776bn in Q4, which is less than the initial plan of $852bn. This news slightly lowered the bond rates, which allowed EUR/USD buyers to counterattack.
The single currency received support on the release of European news. Despite the fact that the German economy contracted by 0.1% in the third quarter. it was better than forecast (-0.2%). In addition. consumer prices slowed to 3%, which confirmed the effectiveness of the Central Bank's actions.
Now the dynamics of the pair will mainly depend on the US labor market data. On Wednesday the Fed will announce its interest rate decision, but surprises are unlikely. Non-farm Payrolls is another matter. The best forex trading strategy this week is to stay out of the market. For risk traders, we can suggest selling if EUR/USD fails to consolidate above 1.0615.